BBC rivals amazed at internet 'whitewash' as governing body insists 110m website doesn't stifle competition

Yesterday the BBC Trust claimed there was no evidence that the broadcaster's online empire  -  which could cost licence fee-payers up to £150million next year  -  was stifling competition.

But commercial companies were amazed at the clean bill of health given to the broadcaster's evergrowing power on the internet.

On the day the BBC axed one of the longest-running programmes on television, it was revealed that bbc.co.uk had gone almost £36million over budget

Many believe that its willingness to lavish cash on its website and the lack of strict competition rules are giving it an unfair advantage.

The review, which was spearheaded by Dame Patricia Hodgson, a BBC staff member for 30 years, also added to calls for regulation of the BBC to be removed from the Trust and given to a fully independent body. As the country's biggest website, bbc.co.uk boasts morethan 200 areas including weather, news, sport and education.

It plans to challenge local newspapers with a new local news site, to the alarm of the papers who fear that they will lose readers.

Yesterday the Trust revealed that the BBC spent £36million over budget on its website operation last year.

The amount spent was £ 110million, almost 50 per cent above what had been budgeted.

The BBC said most of the extra cash was not overspending but a 'misallocation' of overheads and costs from other budgets.

After the last major review into the BBC's online operation, the 2004 Graf report, the BBC closed a number of its sites because they were 'not sufficiently distinctive from commercial alternatives'.

But yesterday Dame Patricia said there was no need to close any this time round. She claimed that bbc.co.uk was 'a central part' of the BBC and said 'vast numbers who use it love it'.

She also backed management plans to broaden the service even further.

The Trust said it would not give the website any more major investment unless it could prove it was 'distinctive' and would not damage rivals. But critics said the Trust's new measures were 'weak'.

Tory culture spokesman Jeremy Hunt said: 'This review shows that significant changes need to be made to the way the website is run, both in terms of financial control and the assessment of its impact on innovation in the market.

'Many will question whether the BBC Trust is able to be judge and juror of the BBC's own services.'

Conservative MP Philip Davies, who sits on the culture, media and sport select committee, added: 'Basically the BBC with its massive licence fee does completely distort the market and makes it virtually impossible for its competitors.'

Mark Wood, chief executive of ITN, said: 'We are alarmed at the extent of the BBC's website funding and its ambition in the dot com world.

Commercial competitors thought the BBC website was already overfunded at a declared budget of £74.2million. We now discover the real figure is £110million rising to £114million next year.

'On top of that, the BBC plans to add £39million of funding which the Trust has limited powers to prevent. That means that instead of a £74million website we are dealing with a £153million website.

'Commercial vendors cannot hope to compete at this level of funding and there is also a real threat to plurality in the media landscape.'