In the report the Governors said that the management must offer quality programmes and services to licence payers that represent value for money. BBC Chairman Michael Grade said, "Traditionally the Annual Report and Accounts has been as much about marketing the BBC as holding it to account and as much about management's view of its own performance as about the Governors' view of management's performance.

The Governors have requested the management to focus in particular on improving the efficiency of production processes. They noted that steady progress has been made, but added that a lot more could be achieved: "The BBC must now set itself more stretching efficiency targets if it is to deliver licence payers the best possible value for money".

The report added, "The key challenge lies in improving the efficiency of production processes. Progress here particularly in terms of benchmarking production costs has not been as rapid as we had expected."

Last year, the rate of licence fee evasion was driven down to 5.7 per cent, from 6.7 per cent. The cash-flow from the commercial subsidiaries increased by £11 million to £135m; and additional savings of £29.3m were made in support costs.

Efficiency savings, together with the recently announced sale of BBC Technology to Siemens should enable the BBC to exceed its cumulative £3.3bn self-help target by 2006/7.

On the programming front the Governors expressed concern about a decline in audience perceptions of the quality of BBC output over recent years. This finding contrasts with both the increased reach of BBC Television and research indicating that audiences believe the BBC offers the best quality in the majority of genres.