Budget 2015: George Osborne should earn his reputation for courage by abolishing free TV licences for the over 75s

The Conservative Party should be worried when its Chancellor of the Exchequer starts to behave like Gordon Brown on a bad day.

The BBC is under increasing pressure to cut costs as licence fee shortfall is revealed (AFP)

The announcement that the Chancellor of the Exchequer is about to transfer the cost of funding free TV licences for the over 75s to the BBC licence fee-payer, as first revealed by The Independent, has effectively pre-empted a proper debate about the size of the BBC and its funding in the run-up to Charter Renewal in 2016.

He is planning to do this by the worst kind of dodgy Whitehall accounting, worthy of an Enron finance director at the height of the dot-com bubble. Worse still, the BBC Trust and the Director-General appeared to have accepted a totally inappropriate transfer of these costs in exchange for some very doubtful gains.

The Conservative Party should be worried when its Chancellor of the Exchequer starts to behave like Gordon Brown on a bad day. It was Gordon Brown who introduced the idea of free TV licences for the over-75s in 2001, although at least he left the burden with the taxpayer where it properly belongs. George Osborne has a reputation for taking courageous decisions. He would deserve this reputation if he recognised that free TV licences for the over-75s is an element of government social policy, and a bad idea wherever the funding burden rested. Rather than transfer the cost to the BBC, he should abolish this entirely inappropriate bribe to the elderly in his Wednesday budget. At a stroke he would reduce public expenditure by £650 million, (it could reach double that amount by 2030 thanks to our ageing population), and would avoid distorting the Charter Renewal debate.

The BBC, of course, are partly to blame. They have lost sight of sight of the principles involved in an unseemly eagerness to do a deal. In a hasty and ill thought out negotiation in 2010 they accepted the transfer of the cost of the World Service, BBC Monitoring and S4C to the licence fee, a similarly deceptive way of transferring costs from general taxation to the TV licence. The World Service, brilliantly run by the BBC, is an arm of British diplomacy and the Foreign Office should continue to pay for it. And BBC Monitoring, that strange arm of overt spying housed in a handsome country house above the Thames at Reading, is nothing to do with the primary purpose of the licence fee. Now, three years later, the BBC is compounding that original mistake at an even greater cost.

The BBC is at its worst when it behaves like a nation state and when its senior management start to negotiate like politicians. The Chancellor is right to suggest that the BBC cannot be exempt from the normal pressures on public expenditure, and he is right to ignore the inevitable shroud waving, (close Radio Four, slash local radio, double the number of repeats), to which the BBC invariably succumbs when cuts are on the table. But to pre-empt a serious debate about the size and funding of the BBC in the run-up to Charter Renewal through this pre-emptive strike is an error of judgement on an industrial scale. Apart from anything else, it completely undermines the role of the Secretary of State for Culture, Media and Sport.

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It is ironic that the Chancellor should cite the BBC's online services as an example of its excessive territorial ambitions. In fact it was the BBC that first grasped the importance of online services as the third broadcast medium and invested in an online news service that is arguably the best in the world. And this at a time when all the major newspapers were, through ignorance and caution, slow to realise the implications of the online world. That doesn't mean the BBC's impact on the competitive environment, online and elsewhere, should be ignored, but it is worth remembering how the BBC established, through intelligent and pioneering investment, its preeminent online position.

So what should have happened? The Chancellor should have earned his reputation for courage and abolished free TV licences for the over 75s. (And while he's at it, knocked the winter fuel allowance on the head at the same time). The debate on the size, funding, structure and competitive position of the BBC should begin - instead it is in danger of ending now that a £650 million cut in the licence fee appears to have become a reality.

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It's odd that the Chancellor should claim that he wants a strong BBC when, in financial terms, he is about to cut the organisation off at the knees. The BBC, with all its faults, remains one of the few British institutions with a worldwide reputation. It is an organisation trusted by the British public in a way that politicians can only envy. The Chancellor's latest financial manipulations will reinforce that distrust.

The BBC Trust and the BBC Executive do not seem to have learned from the mistakes of 2010. They should not have allowed themselves to be bulldozed into yet another round of secretive deal-making. They should have pointed out that the licence fee is intended to support the public purposes of the BBC as set out in its Charter. The BBC's other activities are meant to be “peripheral, subordinate or ancillary” to the BBC's main Public Purpose, which remains to inform, educate and entertain. Not only are the Chancellor's proposals bad accounting, they are well outside even the broadest reading of the BBC Charter. The BBC Trustees and Executive Committee together should have refused to have anything to do with such a shoddy bargain. Their job is to stand up for the interests of the licence fee payer. In accepting the Chancellor's deal they have singularly failed in their task.