Jowell confirms BBC licence fee settlement

Culture secretary Tessa Jowell has confirmed a six-year settlement for the BBC licence fee. As expected, the BBC will receive a 3% increase from licence fee revenues this year and in 2008, followed by 2% increases in 2009, 2010 and 2011. In 2012 the corporation will receive between zero and 2% extra, depending on the full costs of digital switchover.

The BBC had campaigned for a settlement that would rise by inflation plus 1.8% in order to fund the development of on-demand services and lead the transition to digital-only television. Earlier today, BBC director general Mark Thompson said the settlement would create a gap of £2bn between what the corporation believed it needed to deliver its digital vision and the funding available.

Jowell told MPs the Government was also raising the corporation's borrowing limit from £200m, set in 1992, by 12.5% to £225m. Jowell insisted that the licence fee settlement would either be "above or in line" with the consumer prices index over the period, providing "stability and certainty" in the "crucial" period of switchover. Last month the consumer prices index stood at 3% while an alternative inflation measurement, the retail prices index, stood at 4.4%.

Jowell said the settlement would allow the corporation to maintain all its existing services and fund new activities costing up to £1.2bn. It would also allow the BBC to move several departments to Salford. Jowell said the BBC Trust, which is expected to approve the move to the north west later today, needed to deliver the best value for viewers and ensure the BBC was operating on the most efficient basis.

Under the settlement the elderly and disabled will receive help towards the transition to digital-only TV in a £600m scheme. Jowell announced she was keeping open the possibility that the BBC might have to contribute towards Channel 4's switchover costs.

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