BBC disappointment at below-inflation licence rise

The BBC licence fee will rise by 3 per cent in each of the next two years, the Government will announce today. BBC director-general Mark Thompson said the below-inflation increase, that will be outlined in full by Culture Secretary Tessa Jowell, was "a real disappointment."

The BBC's borrowing limit will also be restricted to £230m, rather than the £400m it had requested.

Unions warned that such a deal would lead to heavy job losses and would seriously hit programmes.

The £131.50 fee will rise to a maximum of £151 by 2012. After the first two rises of 3 per cent, the increases will slow to 2 per cent during the following three years, and between 0 per cent and 2 per cent in the final year, breaking the historic link between the rise in licence fee with inflation.

During months of wrangling, the corporation had pressed the Government for an above-inflation increase that it had previously claimed was necessary to fulfil its aims of switching all UK homes from analogue to digital television and moving departments to Salford.

But the BBC is understood to have privately committed to the £400m move of up to 1,800 staff working in some departments, including sport, Five Live and children's programmes, to the north-west by 2009.

BBC Business Editor Robert Peston said that the £230m borrowing limit was "almost half of what the corporation felt it needed" which he said could "put at risk" the Government-backed plan to give away set top boxes in preparation for the switch to digital television in 2012.

Mr Thompson said in an e-mail to corporation employees that the BBC would face "some very difficult choices" if forced to accept a below-inflation increase.

The Government has already announced that a £600m portion of the settlement will be "ringfenced" to help pay for the digital switchover.

Ms Jowell will follow her announcement by giving a keynote speech to the Oxford Media Convention explaining the Government's unwelcome decision.

Chitra Bharucha, the BBC Trust's acting chairwoman, is expected to issue a response from the trust today. She said this week that whatever the licence fee settlement the corporation's duty remained the same: to deliver "high-quality programming" without "shaving off bits of services."