BBC 'set for inflation-linked licence fee'

[BGonaSTICK]

A licence fee linked to annual inflation is the likely outcome of the Government's deliberations over the BBC's funding for the era of digital-only television, according to BBC business editor Robert Peston.

In a report for the BBC's Today programme, Peston said sources had told him that both prime minister Tony Blair and chancellor Gordon Brown were in agreement that the licence fee should go up each year by less than the level of inflation.

Peston said that position was being fought in cabinet by culture secretary Tessa Jowell. While she thought the corporation's demand for an inflation plus 2.3% licence fee settlement was too high, she felt it needed to rise by more than inflation.

A compromise solution of an increase "bang in line with inflation" was the likely outcome, said Peston, and only for a three to five year period.

BBC director general Mark Thompson unveiled the proposed inflation plus 2.3% figure last October. Thompson said that amount would be needed for seven years from next April to meet the cost of the BBC's digital obligations.

In April Jowell dismissed the 2.3% plus inflation demand as an "opening bid" and part of a "negotiation which is just beginning". "We would certainly expect the bid to come in lower than the BBC's proposition," she told a House of Lords select committee.

A final decision on the licence fee settlement is expected within the next two months.