Blow to BBC as below-inflation licence fee rise to be set

The deal, which is understood to have been made between Tessa Jowell and Chancellor Gordon Brown, has not yet received approval from Prime Minister Tony Blair, but could mean that the broadcaster loses out on an estimated £550m of funding over the next 10 years.

If the agreement goes ahead, it will put an end to the corporation's ambitions to secure its proposed inflation plus 1.8% rise over the next seven years from April 2007, which would have made the annual TV licence fee cost around £180 by 2013.

Prior to former BBC chairman Michael Grade's £8m departure to ITV, the BBC was confident its terms could be met, but his departure was viewed as a blow within the industry because of his close ties with key cabinet members, including Jowell.

According to BBC reports, the Department of Culture, Media and Sport said the Treasury had initially held out for a 1.5% below inflation settlement.

Earlier in the week, Jowell told the House of Commons that the government was putting aside around £600m, which will be raised through the TV licence fee, to ensure the most vulnerable in society are assisted in the digital switchover process, which is expected to be completed by 2012.

The BBC has been under pressure to double planned cuts by the government, which has indicated that it wants the corporation to reduce its annual costs by 3% a year, in line with other public sector bodies.

Should the government's proposed 3% licence fee rise be finalised, next year's TV licence fee will cost £135.45.

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This article was first published on brandrepublic.com