As the Chair of the Pension Trustees says in the report, this has been a difficult year for all pension schemes including the BBC's. In 2011, for example, Barclays, BT and the Universities Superannuation Scheme revealed funding deficits of £6.4bn, £4.1bn and £2.9bn respectively, and many other companies face similar challenges with increased deficits. With regard to the BBC scheme, market conditions, and in particular falling bond yields, have pushed up the value of scheme liabilities. As a result, in spite of the value of the scheme's assets rising, the overall funding deficit of the BBC scheme has increased to £2.6bn.

Firstly it is important to note that this is an interim funding check, not a full funding valuation. The next full valuation is due in 2013 and at that point the Pension Trustees and the BBC will, if necessary, agree a new schedule of contributions to address any deficit.

The Pension Trustees rightly recognise that the BBC's support for the scheme remains strong. We are fully committed to the deficit recovery plan agreed with the Pension Trustees following the 2010 valuation and have paid the first two years' extra contributions. Moreover the benefit reforms introduced in 2010 were done specifically to help ensure the long term sustainability of the scheme. Had those reforms not been implemented, we estimate that the deficit would now be around £750m higher. It is important to add that the BBC has no plans for any further reforms at this time.

The report also explains how the Pension Trustees have reduced the scheme's investment risk over the past year, with the ultimate aim of becoming less financially dependent on the BBC. The BBC supports this approach since it will help safeguard the scheme's long term future.

We will of course continue to keep the scheme's position under review and will engage fully with the Pension Trustees following the full funding valuation next year.

Zarin Patel is the Chief Financial Officer at the BBC

Dear all,

I wanted to take the opportunity to correct misleading reports in today's media about the BBC's relationship with individuals who we pay through service companies.

Contrary to these reports, we have not told thousands of workers to go 'off the books' in order to cut our tax bill, neither are we 'avoiding national insurance' contributions by paying individuals via service companies. The facts are simply that freelance contractors who earn more than £10,000 a year are told that we prefer them to set up a service company and, in many cases, this will be their only option. This is for a number of reasons including the need to ensure that the appropriate amount of tax is payable by an individual.

Let me be clear, the BBC does not expect anyone to use the service company arrangement to 'dodge tax' by paying the lower corporation rate when they are not eligible to do so. Moreover, the BBC provides HMRC with details of all payments to these companies every year so that it can independently look into whether the appropriate amount of tax is being paid.

All the arrangements that the BBC uses have been designed in conjunction with HMRC. Far from being an attempt to 'dodge tax', the arrangements are designed to ensure the correct amount is payable, while ensuring that we can offer the flexibility needed in the broadcasting industry, where individuals may work with several different organisations during the year. More detailed information about the BBC's tax arrangements can also be found in my blog from earlier this month.

We will be reviewing our tax arrangements shortly, not because we have anything to hide, but because we want to be able to reassure licence fee payers that all of our arrangements are functioning correctly and appropriately. I hope that the outcome of this review will be reported with slightly greater accuracy than has been the case so far.

Kind regards,
Zarin

Zarin Patel is the BBC's Chief Financial Officer

UPDATE (Thursday 26 July 2012): The Daily Mail have apologised for their article, the text of which can be found on the Daily Mail Clarifications & Corrections page.

At the BBC, there are a number of overriding principles that we follow in this area. Firstly, everything we do is in line with HMRC guidelines, and we work closely with them to ensure that contracts do not result in any loss to the Exchequer. Secondly, we work extremely hard to make sure that we do not incur unnecessary costs that are ultimately borne by you, the licence fee payer.

And behind all this, we need to make sure that we support Britain's creative industries by giving specialist staff the ability to move around where necessary. Suggestions, therefore, that we are somehow facilitating tax avoidance are not only wrong, they are offensive both to the BBC and to the hard-working people who make and present our programmes. And they risk damaging a broadcast industry that ensures an uninterrupted flow of investment into UK content and adds significant value to the UK economy overall.

Let me quote you a senior figure on this issue: "There are circumstances in which it may be appropriate for an employer to engage an individual off payroll - and the fact that an individual is engaged off payroll doesn't mean that they are paying an incorrect amount of tax." Who is this? Danny Alexander, the Chief Secretary to the Treasury in the review that prompted this debate - the government's Review of the Tax Arrangement of Public Sector Appointees.

Now let me explain the details: Across the organisation, in common with every other UK broadcaster, the BBC makes use of freelance and service company contracts. At any one time, between 1,500 and 2,500 people employed as freelancers and fewer than 500 who are employed through service companies. These are people who provide skills 'behind the camera' such as directing, editing and other craft skills for a finite period. This is standard practice for people working across the industry.

Another group of people who regularly use service company contracts is presenters, as they typically work for a number of different organisations in any given year and they offer their services to the BBC and any other employer on self-employed terms. There are around 500 individuals with long term contracts paid in this way at the present time. It would be both unjustified and totally impractical to put all of these people on the payroll. By using the service company framework, which is set down by the HMRC, the BBC and other broadcasters can quickly and effectively contract people without having to undertake a lengthy detailed review of all their other work.

The service companies are not set up to help avoid tax. Once a service company is created, the individual has to pay the correct tax and National Insurance. We cooperate fully with the HMRC and provide them with annual reports of all payments made to individuals who operate service companies and provide all details required on any review they undertake. In addition to this we stipulate in our contracts that we expect individuals to settle their tax liabilities according to the HMRC guidelines in full.

Whether a freelance decides to set up a service company depends on their individual circumstances. But it is the preferred option for the BBC that talent are paid via a service company once a certain amount of work is being offered and HMRC are fully aware and satisfied with this arrangement. It is worth adding that we always recommend individuals seek independent advice on these matters as well.

It has also been suggested that we have forced people to set up service contracts rather than being a full-time employee. Again, this is not the case. We are not aware of any instance where someone who is eligible to be a staff member has requested this status and has been denied it. The BBC supplies the UK creative sector with a rich pool of highly skilled talent to draw from. This benefits large and small firms across the sector and helps the UK attract inward investment from those seeking access to some of the best creative expertise in the world.

We do this not only by producing some of the best content in the world but also by investing significant investment in training on skills used in our industry. The result is that we have a strong track record of nurturing talent across its TV and radio services, creating opportunities for new presenters, performers, musicians and writers that are not available elsewhere.

But we also do this by allowing creative talent the flexibility to move round the industry and to seek sources of income beyond the BBC. This does not only benefit the individual, it benefits the industry and the licence fee payer. And it does not mean - as no less than Danny Alexander has said - that they are paying the wrong amount of tax.

Zarin Patel is the BBC's Chief Financial Officer.

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