Licence to kill: how No 11 nobbled the BBC

Ouch! Mark Thompson got £2bn (that's the equivalent of 111 Jonathan Rosses) less than the £5.9bn he asked Gordon Brown for. So where does that leave the new director-general? At the mercy of a vengeful Chancellor...

Hugo Swire, the Shadow Culture Secretary, was on boisterous form in the House of Commons on Thursday. Attributing the parsimonious BBC licence fee settlement to Gordon Brown's "clunking fist", he embarrassed the Culture Secretary, Tessa Jowell, with a pointed question: "Isn't the reality that it's the Chancellor's announcement, not the Secretary of State's and it's as much a defeat for her as the director- general of the BBC?"

Mrs Jowell later denied it was Mr Brown's settlement, insisting the BBC is her responsibility, but hardly anybody inside the corporation believes her. A senior source who was involved in the 2000 BBC licence fee negotiations says: "Seven years ago the politics were all on our side. Tony Blair supported a settlement 1.5 per cent above the rate of inflation and so did his culture secretary, Chris Smith. The only person who opposed us was Gordon Brown. He stomped out of a key meeting in high dudgeon when we got what we wanted."

"Tessa [Jowell] is a featherweight with no future. This was Gordon's revenge," says a Labour special adviser. "The BBC has never had a go at Brown. He was untouched by Hutton. But he is a philistine. He ought to bend his spending rules for the BBC, but he can't see that it is a special case. Currying favour with Rupert Murdoch is more important - and that is what this licence fee settlement is really all about. "

BBC executives who negotiated the new settlement take a less cynical view. "The Treasury was very sceptical about the last licence fee," says one. "They thought Greg Dyke got more than he needed and wasted it. The reputation for being careful with public money that we earned in the 1980s was squandered. Gordon Brown believes that benchmarked against the rest of the public sector the BBC is getting a generous settlement."

Commercial rivals agree. While they struggle with falling revenues and increased competition, the new deal means the licence fee will rise by 3 per cent for two years, by 2 per cent in years three to five, and by up to 2 per cent in 2012-13, taking it from its current level of £131.50 to a maximum of £151.50.

"From the commercial perspective the BBC has still got a huge public subsidy to compete with services private broadcasters offer," says Professor Steven Barnett of Westminster University.

Senior BBC sources claim things could have been worse. Mark Thompson has called it "a tough settlement [that] could still leave the BBC very well placed in comparison to the rest of the media". A senior BBC insider says: "In the autumn, politicians close to the Treasury were warning us about a four-year settlement instead of six years and at a much less generous rate than we actually achieved. We thought we were going to be tied to even tighter purse strings."

Professor Barnett dismisses that as rose-tinted hindsight. "This is a genuinely disappointing settlement. It is not enough to fund the vision of the BBC the Government itself set out in its white paper. Something will have to go." He advises the corporation to avoid trimming budgets across all of its existing output in favour of abandoning specific projects such as the planned move into ultra-local television services which already faces determined opposition from local newspapers.

Insiders, anxious to defend their existing empires, advise Thompson to maximise non-licence fee income by identifying assets to sell. "Why does the BBC need to own 50 per cent of [the digital television channel] UKTV Gold?" asks a senior programme maker. "As long as it owns rights to the programmes the revenue will continue to flow. Thompson could make £500m by selling the BBC's stake to NTL [the cable and internet service provider that owns the other 50 per cent]." Others suggest ending the corporation's partnership with the American Discovery network in the international channel Animal Planet.

But the BBC's most loyal supporters think the problem is more fundamental. The new deal leaves a £2bn gap between the £5.9bn of extra money the corporation asked for and the income it will receive. Senior insiders say at least one major project must be abandoned. The obvious choice is the controversial relocation to Salford of BBC Sport, Radio Five Live and children's programmes. But Thompson insists it must go ahead. One of the Director-General's supporters says: "Not going would cost more than going. We would have to build new facilities in West London. Salford will definitely happen."

This claim contradicts Thompson's speech last autumn in which he warned that, unless his funding demands were met, the BBC might save money by not moving. But nobody outside his coterie pretends Thompson's lobbying campaign was successful. Chris Smith, the pro-BBC former culture secretary, last week described it as "largely counterproductive".

Supporters say the BBC must somehow extricate itself from the government-imposed obligation to fund conversion of UK households to digital reception before the switchover due to take place between 2008 and 2012.

"When Mark Thompson appeared before our committee we were all concerned that the BBC has to fund the cost of switchover," says Adrian Sanders MP, a Liberal Democrat member of Media Select Committee. "The BBC is £2bn short and over a quarter of that is the £600m the Government has ring-fenced for switchover. This Government is using a regressive tax - the licence fee - to fund a policy that should be paid for by the Treasury out of progressive taxation."

Mr Barnett agrees this is the most damaging obligation facing the corporation. "I would love to know who suggested that the BBC fund switchover. It is government policy, not the BBC's fault and it is fundamentally unfair that the BBC is required to implement it." A Labour MP who has discussed the issue with Shaun Woodward, the broadcasting minister, claims Woodward is "obviously uncomfortable" defending the policy.

When Gordon Brown was an undergraduate at Edinburgh University, socialist orthodoxy saw the BBC as an elitist institution funded by an obviously unfair tax. It suited affluent folk in Islington, but was a damnable imposition on the poor that redistributed wealth in the wrong direction. Forcing the BBC to fund digital switchover from the licence fee dramatically increases the flow of subsidy from poor to rich.

Professor Barnett says that augurs ill: "Informed people say the BBC ought to be seriously worried that Mr Brown is not its friend." By 2013, resentment about this government-imposed abuse of the licence fee may fuel demands for its abolition.

MEDIA DIARY

In need of asylum?

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The smile of fortune

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Lies, damn lies and...

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Tea and sympathy?

A warm welcome back to the world of journalism to George Trefgarne. The former city editor of The Sunday Telegraph quit hacking two months ago to become a speechwriter for BP chairman Lord Browne only to find himself penning his boss's resignation words last week. But Trefgarne has bounced back in style with a piece in The Spectator. The subject: "Is it time for tea?" Considering his career move, a stiff drink might be more in order.

No hacks, we're luvvies

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Sale sensitivities

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Krish 'n' tell again

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