License fee to rise by 3% over each of next two years

LONDON — The BBC’s worst fears were confirmed Thursday as the British government announced the pubcaster’s level of funding for the next six years.

The corporation’s director general, Mark Thompson, said the deal was “a real disappointment” as media minister Tessa Jowell outlined increases to the current £131.50 ($258) fee payable by all U.K. homes that watch TV.

The fee will increase by 3% over each of the next two years, followed by three increases of 2%, with an increase of between 0% to 2% in the final year of the settlement.

This arrangement, reluctantly agreed to by Jowell under pressure from British finance minister Gordon Brown, breaks the historic link between license fee hikes and increases in the U.K. inflation rate.

To rub salt into the wounds of a BBC that will now have to work out how best to economize, the government has decided to limit the pubcaster’s borrowing to £230 million ($452 million), thought to be almost half of what the BBC said it needed.

And in another blow to the corpration, Jowell revealed that she was “keeping open” the idea of the BBC handing over £14 million ($27.5 million) of the license fee to Channel 4, the state-owned rival pubcaster that claims it is facing a funding crisis.

Moreover, the government announced last year that £600 million ($1.18 billion) of license fee income will be “ringfenced” to help pay for the cost of digital switchover, due to be completed by 2012.

Speaking at a Media Summit in London before Jowell’s announcement, Thompson welcomed the “financial security” the deal represents, but said it would leave the pubcaster with a funding gap of around £2 billion ($3.9 billion).

He said: “After seven years of funding that has grown in real terms, we now face not just a tight settlement but daunting investment challenges in distribution, infrastructure and technology that risk diverting money away from content creation.”

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