The cost of a television licence in the United Kingdom will rise by a fixed 3% over each of the next two years and by 2% each year after that, which is less than the current rate of inflation and less than hoped for by the BBC.
The licence fee settlement was formally announced in the House of Commons by the Tessa Jowell, the secretary of state for culture, media and sport.
The BBC had asked for a rise of 1.8% above inflation. Mark Thompson, the director general, who argued that the corporation was “awash in a jacuzzi of cash” when he was previously chief executive of Channel 4, said the deal was a “real disappointment” and said that it means that “we face some quite tough choices”.
The television licence, which is collected by the BBC and funds its radio, television and new media output in the UK, is currently just over £130 a year but will rise to a maximum of £ just over £150 by 2012.
The BBC currently spends around £72.48 of the television licence on television and £34.08 on national and local radio, with just £4.32 on new media and 96p on interactive television.
With the licence fee settlement the BBC Trust has approved plans to move several key departments, including new media, to Salford near Manchester in the north west of England.
The below inflation rise in income is unlikely to materially affect plans to provide programmes over broadband, which are still subject to approval by the BBC Trust.
However, plans to provide a new network of local television news services, which had faced criticism from local newspaper groups, are likely to come under pressure.
The BBC has also been granted a 12.5% increase in its borrowing limit, which is less than it wanted.
While the BBC may not have got all it asked for, it gives the corporation a guaranteed income of more than £20 billion over the next six years, which is more than can be said for commercial broadcasters facing a downturn in television advertising.
The licence fee will also be used to fund a ring-fenced £600 million scheme to help elderly and disabled people switch to digital television. It will also pay for a £200 million public communications campaign run by Digital UK to promote digital switchover.
Subject to a review by Ofcom, the government may also direct the BBC to release digital terrestrial transmission capacity–equivalent to one television channel and three radio channels–to another public service broadcaster, probably Channel 4.
BBC Worldwide, the commercial arm of the corporation, is planning to extend its activities to raise revenue abroad, with plans to launch more channels in the United States and carry advertising on an international version of the BBC web site. There are also plans to provide clips of BBC programming on Google Video or YouTube.