BBC to rein in salaries of top stars as part of massive budget cut

The huge salaries paid to the BBC's biggest stars are set to be slashed as part of wide-ranging budget cuts.

Jonathan Ross, Chris Moyles, Little Britain creators Matt Lucas and David Walliams and Graham Norton are among the talents who have struck multi-million deals with the BBC.

But, as the corporation prepares to make cost-savings across the board, the days when it can afford to bid against commercial rivals for household names are numbered.

The BBC chairman Sir Michael Lyons emailed staff yesterday to tell them the corporation would have to make 3 per cent annual savings and will focus on quality rather than quantity in programmes. He also ruled out closing any BBC channels before 2012.

Although the BBC will have to honour existing contracts such as Ross' three-year deal across television and radio, reportedly worth £18m, when those come to an end, it will be forced to accept it cannot continue to compete with other commercial broadcasters.

Every BBC department is coming under scrutiny, from news and factual to entertainment. Decisions on where the cuts will be made will be taken over the next month, before the BBC Trust next meets on 17 October.

It will be increasingly difficult to justify spending the licence fee on celebrity presenters when respected strands such as BBC4's international documentary series Storyville and news budgets are under threat.

A BBC spokeswoman said: "We always look for value for money when negotiating any talent fees for the BBC. At the end of the day, we want to secure the best presenters and performers."

But, she added: "We've talked very clearly about looking at budgets and no area is ruled out and that will include talent costs. The licence fee settlement wasn't what we hoped for."

Sir Michael announced in July that the BBC Trust would review the issue of talent costs. Terms of reference for the independent review will be set out by the end of the year, but it is expected to take a broad look at what is a reasonable approach to paying talent, rather than dissecting the pay packets of individual stars.

The BBC has come under fire from many quarters for the large sums it has paid to stars. According to documents leaked last year, Graham Norton struck a two-year deal with the BBC worth £5m, while Lucas and Walliams negotiated £3m each over a three-year period. Radio 1 breakfast host Moyles is reportedly paid £630,000 a year, while Jeremy Paxman receives £940,000 for presenting Newsnight and University Challenge.

Terry Wogan, who is paid £800,000 a year for his Radio 2 show, has criticised the BBC for overpaying stars, saying: "You might say the lunatics have taken over the asylum."

In an email to staff yesterday Sir Michael gave a progress report on the BBC's "Six-year plan". He said: "Virtually every household pays the licence fee, so everyone deserves value in return. This doesn't mean trying to please everyone all of the time, but it does mean the BBC must work hard to reach underserved audiences while keeping the support of loyal audiences."

He added: "We must see an extra 3 per cent of annual efficiencies if the BBC is to live within its means and generate enough investment to meet its mission.

"We want the BBC to deliver sustainable quality for all the UK's many audiences. That means it must do no more than it can do well, and it must get the very best value it can."

Following rumours and speculation that BBC3 and BBC4 could be axed, the BBC chairman ruled out cancelling any television or radio service before digital switchover is completed in 2012, but warned that the process of deciding the future of the Corporation is not at an end.

The BBC's big pay deals

1: Jonathan Ross (BBC1 and Radio2)

£18m over three years

2: Graham Norton (various shows)

£5m over two years

3: Matt Lucas and David Walliams ('Little Britain') £3m each over three years

4: Jeremy Paxman ('Newsnight' and'University Challenge') £940,000 a year

5: Terry Wogan (Radio 2 Breakfast)

£800,000 a year

6: Chris Moyles (Radio 1 Breakfast) £630,000 a year