BBC licence fee to be frozen under tough new settlement

The BBC is to have its licence fee frozen for six years and will be forced to foot the £300m annual costs of running the World Service as part of the Coalition Government's squeeze on public spending, it emerged last night.

The corporation's budget will take a huge 16 per cent cut in real terms as a result of the deal hammered out with the Treasury, which will see the licence fee remain at £145.50 until 2016.

BBC bosses agreed to what will be regarded as a very tough settlement, which will also see it take on the costs of running the Welsh-language broadcaster S4C, to head off a government attempt to hand it the annual £556m bill for providing free TV licences for over-75s.

It will take on the £340m combined budget of the World Service, S4C and BBC Monitoring from 2015. Mark Thompson, the BBC's director general, also agreed to provide an additional £150m a year to fund the roll-out of broadband in rural areas from 2013, while an extra £25m will go on local television and online services.

The corporation also agreed to a 25 per cent reduction in spending on its website and will dispose of many of its magazines as part of a government plan to reduce its impact on other media outlets.

Both sides made no secret of the fact that negotiations had been difficult. "This means the BBC has certainty about its future funding," said a Whitehall source. "The Chancellor was determined that the BBC would take its share in reducing public spending. This is a good deal for the licence-fee payer.

"Lots of other options were discussed, but this settlement means that licence-fee payers will not have to take on any extra costs."

Being forced to fund television licences for the over-75s would have been crippling, sources said, coming to around 25 per cent of the BBC's programme development budget.

The scheme, which applies to around 16 per cent of British homes, will continue to be funded by the Department for Work and Pensions. The corporation argued that taking on the added costs would mean it would have to introduce another increase the licence fee.

Insiders also said the BBC should not become responsible for doling out state benefits as an added responsibility that could call its independence into question.

"We would have had real concerns if that had been introduced," said one. "Handing out benefits is not in our remit. The settlement we have reached is tough, but it reflects what the BBC is. We are a broadcaster.

"This settlement means the World Service will continue as an independent broadcaster and Welsh language television has also been safeguarded. We're realistic, and now this means we've got some hard choices to make in the future. But those decisions will be made by the BBC and no one else."