[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Friday, 22 December 2006, 08:40 GMT
Ministers agree TV licence deal
Culture minister Tessa Jowell
The deal is expected to be announced next year
The culture secretary and chancellor have agreed a below-inflation rise for the TV licence fee, the BBC has learnt.

The agreement reached by Tessa Jowell and Gordon Brown has not yet been approved by Tony Blair.

Under the plan, the fee would rise by 3% next year and the year after, and 2% for the following three years. The Retail Price Index is currently 3.9%.

The decision would mean the licence fee rising to 135.45 next year from its current level of 131.50.

By 2012, the cost of a TV licence is set to be between 148.05 and 151.

The level of increase is unclear for year six, because of the uncertainty over the financial cost of the changeover from analogue to digital TV.

That is well below the amount that the BBC had wanted viewers to pay - which included inflation-busting increases taking the figure to as much as 180 over seven years.

The BBC said discussions continued and it awaited an announcement in the new year.

New stance

The agreement would mean the BBC had failed to convince ministers of its case for an above-inflation increase, which it has often enjoyed in the past.

The settlement would also bring the BBC more closely into line with other public sector bodies, as the licence fee will not be linked to inflation at all in future.

BBC media correspondent Torin Douglas said it asked for the above-inflation rise to help pay for better programmes and the switch to digital television.

He added that the increase was also intended to pay for the move of many staff and programmes to Salford in Greater Manchester.

Now: 131.50
Year 1: 135.45, up 3%
Year 2: 139.51, up 3%
Year 3: 142.20, up 2%
Year 4: 145.15, up 2%
Year 5: 148.05, up 2%
Year 6 - 148.05-151, 0-2% rise

Sources at the Department of Culture, Media and Sport said that the Treasury had originally hoped to secure a settlement of 1.5% below inflation.

They added that as a result of their negotiations, they had secured about 1bn in additional funds over the next six years for the broadcaster.

However, the new fee agreement is expected to lead to the BBC cutting back on many of its plans, though it is not clear which ones.

Ms Jowell told Parliament this week that 600m to help elderly people switch to digital television would be ring-fenced and that the BBC's Manchester move should be able to go ahead under the settlement.

'Big questions'

Conservative shadow culture spokesman Hugo Swire added that the deal was a "huge defeat" for Ms Jowell, adding she had led the BBC to believe it would get a generous settlement.

He added: "The big questions now are what comes off the menu agreed between the government and BBC during the charter renewal process, if the BBC can deliver on all they have been told to by the government, and was the original figure submitted by the BBC grossly inflated?"

But BBC business editor Robert Peston said the deal meant the licence fee would rise broadly in line with the headline rate of inflation - the Consumer Price Index, which excludes mortgage payments.

"In theory this is less than inflation, in the sense that Retail Price Index is 3.9% at the moment. And I am sure the Treasury will claim this as a tough settlement," he said.

"But on a running CPI basis, I think it can be seen as broadly in line with inflation - the Bank of England's CPI target rate is 2%."

News of the deal comes just weeks after Michael Grade quit as BBC chairman during key talks over the licence fee.

Behind the scenes at the BBC

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Americas Africa Europe Middle East South Asia Asia Pacific