Corporation looks to pensioners’ goodwill as it faces taking over £725m cost of welfare benefit from the government

The BBC will ask people aged over 75 to voluntarily pay the licence fee to help tackle a 10% real-terms cut in its budget as a result of this week’s controversial shotgun deal with the government.



A senior BBC executive said it would ask elderly viewers and listeners to consider paying the annual charge even though they have not had to pay it since 2001.

The BBC will look to their goodwill to help fund what it said would be the £725m cost of shouldering free licence fees for the over-75s. They will take on the additional funding burden from 2020/21 as part of its funding deal with the government announced on Monday.

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The BBC director general Tony Hall has said the deal, which also saw the BBC receive a number of funding benefits, including the prospect of the licence fee being linked to the consumer price index, would give the BBC “effectively, flat licence fee income across the first five years of the next charter”.

James Heath, the BBC’s director of policy, said in real terms it would equate to a cut in funding available for BBC services to about 10%, half the Office of Budget Responsibility’s forecast of a 20% cut.

He said the BBC would have to “continue to make tough choices and simplify the BBC in the next charter”, which will begin in 2017, raising the prospect of the closure of more frontline services after the decision to axe the BBC3 TV channel.

On the cost of paying for free TV licences for over-75s, Heath said: “We will give those eligible households an opportunity to voluntarily pay for a TV licence and so make a contribution to the cost of the BBC’s services.”

As well as covering the cost of free licences, the BBC will also take charge of policy on licences for over-75s, which was previously decided by the government.

Set against the £725m cost of free licence fees, Heath said the BBC estimated it would generate £100m a year from the “modernisation” of the licence fee, expanded to include online viewing and would save £150m from no longer having to ring fence money from broadband rollout.

Most significantly, the BBC estimated the CPI link to the licence fee, dependent on the conclusions of charter renewal, would deliver income of “around £350m per annum at the Bank of England’s target inflation rate of 2%”.

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“Forecasting how all these factors will add up over the period is complex; we anticipate that the new arrangements will result in flat cash funding for BBC services over the first five years of the next charter period. In real terms, the licence fee funding available for BBC services will be down by around 10%,” said Heath in a blogpost on the BBC website.

“The way the financial settlement is structured gives the BBC some room for investment in digital transformation in the early years of the next charter before the full cost of over-75s is absorbed. This will help us to manage the transition we all know is coming to an online world.

“We believe that the substance of what has been agreed is a strong deal for the BBC in very tough circumstances.”

However, the forecast does not include the impact of decriminalisation of the licence fee, which the corporation has said would cost it £200m a year.

Heath said: “The agreement means we will continue to make tough choices and simplify the BBC in the next charter, building on the savings already planned to close the BBC’s £150m per annum funding gap and manage the ongoing inflationary pressures in our cost base. But, alongside, we now have the planning certainty we need to give the BBC financial stability and the opportunity to continue our reform programme.”

Free licence fees for the over-75s were introduced by the then chancellor Gordon Brown in 2001.