BBC funds defeat as licence fee is pegged

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Television viewers can look forward to a minimal increase in the cost of the licence fee over the next five years after the BBC lost its battle to persuade the Government it needed more funds.

The corporation lobbied hard to persuade Virginia Bottomley, the Heritage Secretary, that it needed more than than the usual inflation-pegged price increase to pay for the huge costs of launching digital television next year.

But Mrs Bottomley herself came under Treasury pressure to resist even an increase peg- ged to inflation with the election looming next spring.

Yesterday, she announced the compromise solution of denying the BBC its proposed "modest increase" to the present pounds 89.50 fee, but agreed a five- year formula which would see it rise by just below the rate of inflation, now 2.1 per cent.

Over the period to 2002, DNH says the licence fee will rise by 0.08 per cent below the retail price index, so if inflation stays at its current rate the fee will never reach the magic pounds 100 figure in that time.

The settlement means that the licence fee will rise to pounds 91.50 next year. The year after, it will rise by 3per cent above inflation to help cover the cost of launching digital television next October.

However, it will dip back in the final two years of the settlement to 1 per cent below inflation in 2000, and 2.5 per cent below inflation in 2001.

The decision follows a report from independent consultants Braxton Associates which argued that the BBC could make further efficiency savings and was expecting a cash boost from the sale of its transmission services and an increase in income from commercial spin-offs.

John Birt, the director-general, is understood to have disagreed on the extent of further savings which could be made over the next five years. But he said yesterday that the settlement was a positive signal, as it gives the BBC its first increase in the licence fee since 1985.

The problem would be in years four and five when the licence fee dips. "My judgement at the moment is that the settlement is unrealistic in that we will be unable to fund the digital vision in that period,"said Mr Birt.

Mrs Bottomley hailed the settlement as a victory for the Department of National Heritage. "The report from Braxton Associates makes it clear that there is still room for further efficiency savings at the BBC," she said. "It needs to keep the pressure on to deliver good value to the licence fee payer."

Asked if she expected the licence fee to continue beyond 2002, she said: "The BBC stands for high-quality public service broadcasting, and that is inextricably linked with the licence fee regime for the foreseeable future."

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