The coalition government announced on Wednesday that the television licence fee had been frozen in value for six years, to 2016.  To eternal optimists, and to BBC spin doctors, this might have come as good news: at least the uncertainty over funding levels had ended, and the licence fee would be retained, with no reduction, till the end of the BBC’s Charter in 2016.

 However, the reality is far starker.  The BBC had offered in September to freeze the licence for 2012-3, having already waived a previously agreed 2% rise for 2011/2, so maintaining the prevailing level of £145-50 a year, payable by each household with a television set.  Somewhat ominously, Jeremy Hunt, the Secretary of State for Culture, Media and Sport, declined the 2012/3 freeze, saying it would be addressed in the negotiations for 2012-17 that were ostensibly due to take place in 2011.

Apparently, as early as May this year, Hunt had floated at the BBC’s Director-General, Mark Thompson, and the Chairman of the BBC Trust, Sir Michael Lyons, the possibility that the price of a licence fee settlement might be a requirement that the BBC take over the obligation to provide free licences to all homes in which somebody over the age of 75 lived – nearly 4 million in all, on whose behalf the government currently pays £556m a year to the BBC.

Thompson and Lyons baulked at this: why should the BBC pay for a universal welfare benefit?  No doubt Hunt replied that the BBC was already using £140 million a year from the licence fee to pay the costs of poor and elderly people in managing the convert to digital television as analogue signals were progressively switched off across the country.  What, after all, did that have to do with public service broadcasting, and why did all licence fee payers have to subsidise these homes?

For two years, the BBC had resisted Labour government plans to transfer that £140 million a year, after digital switchover was complete, to support regional television news on ITV – a purpose very much aligned with public service broadcasting, but regarded as anathema by the BBC, in diverting licence fee income to a commercial broadcasting system.  As soon as Hunt became Secretary of State, he killed this idea, and the BBC breathed again.  It seemed that the whole notion of “top-slicing” the licence fee – which the BBC collects and to whose total net proceeds it believes it is entitled – had been parked.

In the run-up to Wednesday’s Comprehensive Spending Review (CSR), the pace quickened.  The over-75s proposal was ramped up again, along with a threat that the licence fee negotiations next year would be against a backdrop of continuing criticism of BBC management salaries, talent costs and all the other examples of BBC “waste and extravagance” that ministers could muster.  It seems that a “deal” which avoided this began to look attractive if it locked in an undiminished licence fee till 2016, and confirmed that the BBC Trust – which regulates the BBC and which had been roundly criticised by Hunt and his Labour predecessor – would also remain in place till then.

But that was not where the deal finished.  The BBC had apparently countered the over-75s proposal by offering to take over the cost of the BBC World Service.  This collection of broadcast offerings, primarily in radio, is delivered editorially by the BBC but funded by the Foreign Office (to the tune of around £272 million a year currently), who also decide which overseas audiences are to be targeted.  Originally launched as the Empire Service by the BBC in 1932, its scope and cost had been taken over by government as world war approached. 

Lyons and Thompson somehow persuaded themselves that this would be a financial “hit” they could justify as repairing the BBC journalism brand (to the extent that BBC World Service output was regarded as tainted by its funding source).  However, whether the Foreign Office has agreed to relinquish overall control of the World Service is by no means clear.

Once the BBC defences had been breached by this concession, Hunt pushed through the transfer of a series of costs chargeable to his own department which the licence fee would in future have to bear: monitoring of foreign broadcasts, the Welsh language channel S4C, broadband roll-out and local television investment.  None of these has any justifiable claim on licence fee payers, but Hunt has clearly decided to use the licence fee as a government piggy-bank.

The BBC’s willingness to agree to all this is surely a huge blow to the credibility of the licence fee as its funding source.  Nothing could be clearer than this shotgun ambush, conducted in the final hours before the CSR was published, as a demonstration of the fallacy of the claim that the licence fee preserves the BBC’s independence.  If anyone believed that before this Wednesday, no-one will now.

The cost of this deal is as horrendous as the shredding of the licence fee’s purpose.  £340 million a year will be transferred from government costs to the licence fee payer.  This is on top of the £140 million a year the BBC has conceded will be needed to plug the holes in its pension fund.  As a percentage of a fixed £3.6 billion income, that comes to 13.3%.  However, the impact of freezing income whilst virtually all costs faced by the BBC continue to rise will surely erode the BBC’s spending power by a further 12%, such that by 2016, the BBC will have had to shed 25% of its current costs and activities.

In fact, the BBC is notoriously bad at squeezing costs, however often they announce stringent efficiency measures.  Mr Thompson has boasted that thousands of jobs have already gone under his leadership, but the actual reduction last year was just 52 (out of 24,000).  Likewise, the £553 million of “savings” reported by the BBC over the last two years have all been re-allocated to new expenditure, such that BBC spending has not reduced: a feature of BBC life for nearly all its 88 years of existence.

In particular, reducing fixed costs (infrastructure and staff) is far harder than reducing variable costs (channel and programme budgets).  The BBC has announced that its Deputy Director-General is to leave next year, saving £500,000 a year in salary costs: but his redundancy payment will be double that.  This is an organisation that faced a major staff revolt over proposed reductions in benefits from the BBC pension fund.  Wholesale redundancies and the closing of broadcast channels will be an experience at an entirely different level.

The tragedy is that Thompson and Lyons have chosen to impale the BBC on a funding mechanism that their own political masters have chosen to discredit.  Instead of challenging Hunt to have the courage of his convictions, and announce a 10% cut in the licence fee, leaving all the new tasks as the government responsibilities they truly are, they have clutched at the deal on offer.  Instead of handing back the licence fee as a mechanism now more abused than respected, and researching the possibilities of a subscription system over which ministers had no control, they have kept a-hold of nurse, for fear of something worse.

Wednesday was the blackest day in the BBC’s history.  Hunt, Thompson and Lyons may all spin the deal as a victory, but it was a defeat for viewers and listeners, for BBC staff, for the independence of one of our most respected institutions, for the principles underlying the licence fee and for the whole of public service broadcasting.  Shame on them.  Shame on us if we tolerate such an outcome without demanding radical change.