BBC director general Mark Thompson threatened yesterday to abandon plans to move parts of the corporation to Manchester if it did not receive a substantial increase in the licence fee.
Mr Thompson issued the ultimatum over the planned relocation of 1,800 jobs to Salford Quays in 2010 at a cost of about £500m amid wrangling over the annual rise in the fee.
Last year Mr Thompson emphatically denied a report in The Independent that the move was in jeopardy. He insisted that the projected relocation out of the capital of BBC Sport and Radio Five Live among other sections was unaffected by London's winning the bid to stage the 2012 Olympics.
The move to Manchester, which would also affect children's channels CBBC and Cbeebies, was initially mooted for 2009 but the deadline is believed to have drifted by a year following the appointment of a new chairman after the Hutton inquiry.
The drive to move also lost impetus after the departure last year of one of its chief architects, Peter Salmon, the former head of sport who once worked for Granada in Manchester.
Yesterday Mr Thompson told the Smith Institute Media Lecture in Westminster: "From the start, the BBC's governors have made it abundantly clear that they would only approve the case for Salford if it could demonstrate robust value for money, and the licence fee settlement made it affordable. I am sure that the Trust is likely to take the same view. Indeed, in the event of a low settlement, I would not even be able to recommend it to them. We would have to find other, more modest, ways of increasing our investment in the North".
The BBC has asked for an annual rise in the licence fee of 2.3 per cent above inflation, although Thompson confirmed yesterday that the bid will drop to 1.8 per cent above inflation if industry regulator Ofcom decides not to introduce spectrum tax - a levy on use of the digital spectrum.
While his statement does not spell the inevitable demise of the move north, it serves as a reminder of what would be a perplexing decision, especially for BBC Sport, with a television and radio staff of 400. If it moved to Manchester before the Olympics the BBC would have to pay for hundreds of staff and outside broadcast units to travel south to the capital in what they fear would be seen as a huge waste of licence-payers' money.
The director general said that personally he was committed to the Manchester move, but that: "I believe ... in the event of a low settlement, the Trust will focus on those proposals which - though very important - are lower on the public's list of priorities." Thompson made his comments in a Smith Institute Media Lecture in Westminster, central London.
In a clear message to Culture Secretary Tessa Jowell, he said the BBC was undertaking a process of major reform, adding: "But reform needs support. And an important part of that support is realistic funding. The public has shown not just that it trusts the BBC model and that it understands the concept of public value. It has shown it is prepared to pay for it. That's a message which I hope the Government will now heed."
Labour MP Hazel Blears - also the party's chairman - said: "As Salford's MP, I believe it is vital that the BBC comes to Salford.
"It will bring 15,500 jobs, investment and new business opportunities. It will create a new media city which will benefit British broadcasting.
"The BBC's director general and board of governors must make their public commitment to Salford a reality. It would be a missed opportunity of epic proportions if the BBC board renege on their promises."
Liberal Democrat media spokesman Don Foster said: "I'm pleased that the BBC has found a way to reduce its demands, but a cut of £250m over seven years is a drop in the ocean.
"It's the Treasury's failure to decide what has to be included in the licence fee that is creating the greatest uncertainty. It's equally disturbing that we don't know for how long the licence fee agreement will last. A three-year agreement, as some are proposing, would be a disaster and would give the BBC no security to plan its future during the switch to digital.