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Last Updated: Thursday, 18 January 2007, 10:58 GMT
What does the BBC do now?
Torin Douglas
By Torin Douglas
Media correspondent, BBC News

What does the licence fee deal mean for the BBC?

So the pre-Christmas leaks about the licence fee are confirmed. It will rise by 3% this year and next, 2% in the following three years, and by a lower figure in the sixth year.

Aerials populate the roof tops in Glasgow
The Government has ringfenced 600m to help digital switchover

These are fixed figures - there will no longer be a link to the Retail Price Index.

It means the licence fee will go up to 135 in April, from the current 131.50. But what will it mean for the BBC's listeners, viewers and website users? That is less easy to answer at this stage.

At the time, the BBC director-general Mark Thompson said such a deal would be "disappointing" if it turned out to be true.

Trade unions went further, calling the prospect "catastrophic".

They began a last-ditch lobbying campaign, with MPs and the campaign group Voice of the Listener & Viewer, to preserve the link with the RPI - but it was never likely to change the Government's mind.

A couple of issues remained to be negotiated, which is why the deal could not be announced before Christmas.


The BBC wanted an increase in its borrowing limit, to help fund two big projects - the relocation of 1,500 staff from London to Salford, Greater Manchester, and the supply of digital boxes to help the elderly and vulnerable to switch over to digital TV.

It had hoped to double the current borrowing limit, from 200m to 400m, but has finally been given far less - no more than 230m. That will put a further squeeze on its spending plans.

BBC production gallery
The BBC had earmarked 1.6bn for better quality content

The other negotiating issue was over the digital boxes for the elderly.

The Culture Secretary has already said that 600m will be ring-fenced from the licence-fee to fund this scheme - itself a break with tradition. This was not part of the BBC's calculations, and will squeeze the funds further.

The BBC is also concerned that the final cost of the scheme may be even higher - depending on how many people apply for it. It does not want to rob its programme budgets to make up any shortfall.

Despite all this, it may not be such a bad deal - certainly viewed from outside.

The Government points out that the Consumer Price Index (a different measure from the RPI) is currently 3% and the BBC will get these increases even if inflation falls.

Picket line at BBC Television Centre
Will the settlement lead to job cuts and strike threats?

It gives the BBC certainty for six years, which is something that commercial broadcasters - buffeted by the advertising downfall - can only dream of. And the number of households is going up, so more people are paying the licence fee, boosting the BBC's income.

But it is still a lot less than the BBC asked for, and will force the Corporation to make some tough choices.

The move to Salford will now go ahead, despite fears that a low settlement would scupper the project. So too will the plans for the switchover to digital television. So what is at risk?

In its original bid the BBC earmarked 1.6bn for better quality content, with more money for drama, comedy and entertainment, the arts, journalism and learning. It wanted to invest in the British film industry and reduce the number of repeats.

A further 1.2bn was planned for better digital services, including great interactivity with the audience, and 600m was to go on local projects, including new local TV services. Many of these plans must be trimmed and some possibly cut altogether.

The BBC will also have to find further savings, including job cuts, which will put it on a collision course with the unions.

What the license fee settlement could mean for viewers

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