Media playback is unsupported on your device Media caption John Whittingdale said the deal "did not pre-empt charter renewal"

The BBC is to cover the cost of providing free television licences for over-75s, the government has confirmed.

Ministers said the move would be phased in from 2018-19. In return, rules on paying for catch-up services such as iPlayer might be introduced and the licence fee will rise with inflation.

Funding free licence fees for over-75s cost the government £608m in 2013-14 - about a fifth of the BBC's budget.

The BBC said it was the "right deal... in difficult economic circumstances".

BBC director general Tony Hall said: "Far from being a cut, the way this financial settlement is shaped gives us, effectively, flat licence fee income across the first five years of the next charter."

Shadow culture secretary Chris Bryant said Labour would oppose the government's plans if they were a "smash and grab raid" on the BBC.

Key points

The BBC to take responsibility for funding free TV licence fees for the over-75s

The move will be phased in over 2018-19, with sole responsibility from 2020-21

The government could allow the BBC to charge the licence fee to people who watch TV using the iPlayer

Decriminalising non-payment of the licence fee will be "carefully considered" by the government

Subject to charter renewal, the licence fee to rise in line with CPI inflation over the next charter period

BBC funding of the government's broadband programme will be phased out by 2020-21

The current BBC charter - which sets out the corporation's remit and how it is governed - is due for renewal at the end of 2016.

Analysis

Image copyright Reuters Image caption The corporation will bear the full cost of free licences by 2020-21

By Nick Higham, BBC News correspondent

At first sight today's announcement looks like pretty bad news for the BBC.

The cost of licence fees for the over-75s is only set to rise as the number of households with someone over 75 increases.

Yet the BBC's director general Lord Hall was positively upbeat, claiming the deal he's done with the government is a good one which will leave the BBC, at the end of five years, no worse off and possibly slightly better off - though that's in cash terms, not real terms.

Cue much head-scratching among analysts, trying to work out from the available numbers if the picture is really as rosy as the BBC maintains.

And significantly, perhaps, Lord Hall would not rule out possible cuts to services.

But there has also been forthright criticism of the way the deal was done.

Lord Hall and the chair of the BBC Trust, Rona Fairhead, were only told by the government a week ago that this was happening.

Lord Birt, himself a former BBC head, says the government had set "a very dangerous precedent" by doing a deal on BBC financing behind closed doors with no public consultation for the second time in five years - suggesting the BBC's independence from government has been compromised.

BBC funding In 2013-14 £3.72bn received from licence fee BBC One's budget £1bn

Radio Four's budget £91m

Cost of free licence fees for over-75s £608m Getty

* £271.4m of the total used by the Government to fund S4C, the local TV scheme and broadband rollout.

In a statement to the Commons, Culture Secretary John Whittingdale said the charter renewal process would ensure the BBC could "adapt to a changing media landscape".

Mr Bryant called the announcement an "utter shambles" after the plans were revealed in a Sunday newspaper ahead of Wednesday's Budget.

In an angry exchange in the Commons, Mr Bryant stressed the process must be "open and transparent", adding it was "no way to run a whelk stall let alone the world's most respected broadcaster".

'Modernise licence fee'

Mr Whittingdale said he was pleased "the BBC had agreed to play its part" in helping tackle the government's "challenging fiscal position" while further reducing its "reliance on taxpayers".

Media playback is unsupported on your device Media caption BBC director general Tony Hall said it was a "strong deal" for the BBC

Lord Hall said there had been "intense negotiations" to ensure the BBC had "secured a strong deal for our audiences".

"If anything, I believe it will put the BBC slightly up," he said.

"Crucially, it gives us room for investment in the first two years of that charter. This will help us to manage the transition we all know is coming to an online world."

In a letter to Mr Whittingdale, BBC Trust chairman Rona Fairhead said the Trust accepted the decision "although we cannot endorse the process by which it has been reached".

"We are disappointed that [licence fee payers] have not been given any say in the major decisions about the BBC's future funding," she said.

"However, we accept that those decisions now set a clear financial framework, subject to the terms... for a charter review process that will focus on what the BBC provides in return for its funding. We will want to make sure the public are at the centre of that debate."

Mr Whittingdale also confirmed plans to bring forward legislation to modernise the licence fee next year "to cover public service broadcast catch-up TV".

Media playback is unsupported on your device Media caption Shadow culture secretary Chris Bryant: "It's an utter shambles"

He added the government would "carefully consider" decriminalising non-payment of the licence fee.

When asked if over 75s would be means-tested to determine whether an individual or household was eligible for the free licence, Mr Whittingdale replied: "The commitment made in the Conservative manifesto that all households with an over 75-year-old will be eligible to a free TV licence will be honoured throughout this Parliament.

"As requested by the BBC, they will take responsibility for this policy from thereon."

Speaking on Radio 4, former acting BBC Trust chair Diane Coyle said: "It's the second time the government has forced a deal on the BBC.

"There has been no consultation with the public and it's a major change in the BBC's responsibilities. The public who pay for the BBC should have been consulted."

Mr Whittingdale added the government, depending on the Royal Charter agreement, expected the licence fee to rise in line with consumer price index (CPI) inflation over the next charter period.

"I don't think it will balance out in the long run," said Ms Coyle.

"I welcome getting the inflation link back, but the number of people over 75 is going up all the time and it's not clear to me in the long time it can avoid service closures to cover it."