David Farnor | On 08, Jul 2015

The BBC will be given full responsibility for subsidising free TV licences for over-75s, the government has announced.

The deal, which is set to be confirmed in today’s 2015 Budget by Chancellor George Osborne, will see the broadcaster footed with the bill for over 4 million free pensioner licences. The measure will be phased in from 2018, with the Beeb taking on full costs from 2020.

The cost for the scheme will total some £650 million, taking up roughly a fifth of the BBC’s overall budget – significantly higher than the £91 million budget for Radio Four, according to the 2013/14 BBC Annual Report. (The BBC received approximately £3.72 billion from the licence fee in the same year.)

The deal will help to cover the Conservative Party’s overall cuts to the UK welfare bill. This is not the first time that the broadcaster’s public funds have had to fund such initiatives. In 2010, Osborne said that the £150 million of BBC money previously ring-fenced to pay for the UK’s switchover to digital TV would have to pay for some of the £530 million costs of rolling out broadband to rural areas. The BBC was also required to pay for some of the costs for Welsh TV channel S4C. At the same time, the licence fee was frozen for six years at £145.50, which, combined with the other costs, amounted to a 16 per cent real terms cut in funds.

Since then, the Beeb has found itself facing an additional funding shortfall, thanks to the rise in online TV viewing. A current loophole means that those watching catch-up TV on BBC iPlayer do not have to pay a licence fee; only those streaming live content on the VOD service have to pay the £145.50 annual charge. With no way to police this fully, the BBC is losing out on £150 million in licence fee income.

As part of its new agreement, the government has said that it will bring forward legislation in the next year to “modernise the licence fee to cover public service broadcast catch-up TV”, effectively closing the iPlayer loophole. This will help to recoup some of the lost revenue from its new agreement, although the BBC would still be around £500 million out of pocket.

The government will also reduce the broadband ringfence to £80m in 2017/18, £20m in 2018/19, £10m in 2019/20 and £0m in 2020/21.

The controversial measures have been agreed ahead of the renewal of the BBC charter, which is due to take place by the end of 2016.

Subject to that review, the government also says that the licence fee will rise for the first time in six years in line with inflation. However, it requires the BBC to demonstrate “that it is undertaking efficiency savings at least equivalent to those in other parts of the public sector”. Indeed, Director General Tony Hall announced this month that the broadcaster will cut more than 1,000 jobs to help cover loses. BBC Three, meanwhile, is being turned into an online-only channel.

Osborne said that the deal has resulted in “a funding model that is sustainable and can adapt in an age where technology is rapidly changing”.

Hall added: “We have secured the right deal for the BBC in difficult economic circumstances for the country. This agreement secures the long term funding for a strong BBC over the next Charter period. It means a commitment to increase the licence fee in line with inflation, subject to Charter Review, the end of the iPlayer loophole and the end of the broadband ringfence.”

However, he also told Radio 4’s Today that there are “issues to do with the independence of the BBC which will be examined at the charter review”.

Indeed, in addition to the costs facing the BBC, the agreement with the public service broadcaster was reached behind closed doors, something the BBC Trust challenged Osborne over in an open letter published on Twitter.

“We are disappointed that [the public] have not been given any say in the major decisions about the BBC’s future funding,” said chair of the Trust, Rona Fairhead.

“I think the process should be looked at,” Lord Hall told Radio 4. “This is the second time this has happened. It is the government’s decision to come at it this way.”

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