BBC funding to be cut in real terms

Government to impose a below inflation rise on web

LONDON — The BBC is facing a bleak Christmas and New Year as it emerged that the British government has decided the pubcaster’s future funding will be cut in real terms.

A deal brokered between government officials on the BBC license fee — payable on all U.K. households that have a TV set and currently £131.50 ($250) a year — is understood to give the corporation an average 2.4% increase over the next five years.

The complex formula, agreed between U.K. finance minister Gordon Brown, the British prime minister in waiting, and media secretary Tessa Jowell, is equivalent to 0.45% below the projected average rate of inflation during that period.

Originally the BBC, already in the midst of a cost-saving program, had asked for an increase of 2.3% above inflation.

This was later revised to 1.8% above inflation when a government-backed report challenged the BBC’s number crunching.

Significantly, the deal breaks a long-standing link between license fee increases and the inflation rate.

It will inevitably lead to further economies at the corp.

According to a well-sourced report in the Financial Times, the BBC will receive annual increases of 3% in 2007/08 and 2008/09 and 2% for the following two years.

For 2012/13 the increase will be up to 2% depending on the costs of completing the U.K.’s switch from analog to digital TV, which the government wants finished by 2012.

The government has always said the BBC must foot the bill for the transition to digital.

It is believed the package has to be approved by senior government ministers and the prime minister but this appears to be a formality.

The BBC was tight-lipped about the license fee decision, expected to be announced in January.

It said discussions were “still continuing. We await a decision and an announcement in the New Year,” said a BBC spokesman.

Jowell favored a more generous amount of coin than Brown, determined to force a tough settlement on the BBC, otherwise other public services would get the wrong message.

It is understood that Jowell’s negotiating position was weakened by last month’s dramatic exit of Michael Grade, who quit his job as BBC chairman to head the pubcaster’s battling commercial rival, ITV.