The BBC has been blindsided by one the toughest funding settlements in the public sector, that will force cuts with implications for the broadcaster’s output, staffing and ambition.
Nadine Dorries, culture secretary, said the licence fee will be frozen for two years at £159, then rise in line with inflation until the end of 2027, making it one of the least generous financial packages for the corporation in decades.
The BBC had called for the levy to at least keep pace with inflation in protracted talks with the government. Instead, the terms will open an era of wrenching austerity for the public service broadcaster as it enters its centenary year and attempts to compete with deep-pocketed rivals such as Netflix and Disney, which are ramping up investment and fast encroaching on its turf.
The licence fee, charged to anyone who watches live domestic content, raises around £3.7bn and accounts for about three quarters of the corporation’s budget.
As compensation for the freeze in the fee, the government announced that it would double the borrowing limit of the BBC’s commercial arm to £750m, providing the broadcaster with some financial room to reconfigure its international services.
Richard Sharp, the BBC chair, and Tim Davie, director-general, described the deal as “disappointing” not just for licence fee payers but the cultural industry in the UK.
“The BBC’s income for UK services is already 30 per cent lower in real terms than it was 10 years ago,” the BBC leaders said, adding that the settlement would “necessitate tougher choices”.
Sharp later suggested the corporation had been caught off-guard by the final details of the settlement, which emerged in tweets from Dorries on Sunday. Sharp told BBC Radio 4 he had not “anticipated learning what I learnt over the weekend”.
Dorries said in the House of Commons she recognised that the BBC was a “great institution” but stressed she was being “realistic” about the “economic situation”. “When it comes to monthly bills, this is one of the few direct levers that we have as a government,” she said.
The culture secretary added the government had long planned to review the BBC’s funding model, saying she would be “accused of being a dinosaur” if she said she would “just carry on as it is [with] this licence fee”.
But she notably stopped short of repeating her assertion, made on Twitter over the weekend, that the licence fee settlement would be “the last” for the BBC.
Abi Watson of Enders Analysis estimated the latest financial settlement would create a shortfall for the BBC of £871m by 2027. That adds to the pressures from two licence fee settlements since 2010 that have squeezed the corporation’s funding by around £1.1bn.
The broadcaster will evaluate the implications over coming weeks. Insiders say the tight terms will require decisions over the viability of television channels such as BBC Four, significant staff cuts, and a retreat from certain types of output.
Some BBC executives see the overall settlement as a bad but manageable outcome, particularly as there had been fears a hostile Boris Johnson government would impose real term cuts for most of the budgetary period.
Even so, when compared to spending plans for Whitehall departments, where almost all received real term increases in spending, the BBC stands out as one of the biggest losers within the public sector. Lucy Powell, shadow culture secretary, said the deal was part of a longstanding government “vendetta against the BBC”.
“This is the crunch now,” said Lord Michael Grade, a former BBC chair and former executive chair of ITV. “They need to have a long hard look and see what activities they can actually cut.”
“Do they need all those networks, both radio and television? Do they need their online offering to be so incredibly comprehensive? [There are] all kinds of questions they need to ask.”