Leading article: The crunch is still to come

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An announcement is not due until the new year, but word has got out that the Government is planning to award the BBC a below-inflation increase in the licence fee for the next year. This translates into a cut in real terms and breaks the traditional link between the licence fee and the rate of inflation. This has been widely interpreted as a blow for the corporation and a personal defeat for the Secretary of State for Culture, Tessa Jowell, who is said to have supported an above-inflation deal. In response, the broadcasting workers' union, Bectu, wasted no time in warning of job losses. And there were gloomy predictions of an increase in the number of repeats that will have to be shown in future as a result.

But the truth is that the BBC's funding request was always rather unrealistic, given the tighter Treasury spending round facing other public services next year. This was true even after the corporation reduced its demand for a settlement of 2.3 per cent above the inflation rate to 1.8 per cent. The director-general's negotiating tactics, such as threatening to call off the planned staff relocation to Salford and pleading for huge sums to finance the corporation's full transition to digital, probably did the BBC's case no favours either.

If it turns out as reported, the deal seems a sensible compromise. The Chancellor, Gordon Brown, wanted to impose a far less generous settlement. We should remember that the corporation still receives £3bn a year through the licence fee. This remains a sum that the BBC's commercial rivals can only dream of. Moreover, it is clear that money does not guarantee quality in broadcasting. Stuffing the mouths of BBC producers with gold does not necessarily do a service to the public which must pay the licence fee.

It is also important to bear in mind that this is only an interim settlement. The time is approaching when a revolutionary overhaul of the corporation's finances and income will be necessary. The 2012 digital switchover, when the BBC will simply become one media provider among many, will expose complacency and waste in the corporation better than any internal cost-cutting review. Those of us who wish to see the BBC and its distinguished tradition of quality public-service broadcasting thrive in the new digital era should be aware that the real crunch is yet to come.

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