Photo by EPA BBC strikes surprise funding deal The public broadcaster agrees to pay for service for elderly viewers, a controversial reform that it had rejected in the past.

LONDON — A sudden, unexpected deal between the BBC and the U.K. government has temporarily secured the public broadcaster’s funding in return for it paying for television licenses for elderly viewers.

John Whittingdale, the Conservative minister responsible for broadcasting policy, told the House of Commons Monday that the BBC had agreed to pay the TV licenses for people older than 75, which currently costs the pensions department more than £600 million a year.

In return, the £145.50 license fee that funds the public broadcaster will be increased annually in line with inflation.

The agreement will help the Chancellor George Osborne achieve his pre-election savings promises by shifting the vast commitment from the government's welfare budget. It also removes one of the main points of contention from negotiations about the BBC’s charter, which are expected to kick off this month with the release of a government discussion paper.

But the haste of the deal, thrashed out by officials over the weekend, was criticized by the BBC Trust, the broadcaster’s governing body, which indicated in a letter to the Chancellor that it had been excluded from the talks.

“We accept this decision is a legitimate one for the Government to take, although we cannot endorse the process by which it has been reached,” Rona Fairhead, the BBC Trust’s chairwoman, wrote to Osborne.

Chris Bryant, Labour's culture and media spokesman, said the agreement was an "utter shambles" and a "shabby little deal" because it was not conducted openly and transparently.

"This is no way to run a whelk stall let alone the world's most respected broadcaster," he told the Commons.

The threat of being made to pay for pensioners’ license fees was for the BBC the most worrisome of the reforms that have been floated in recent weeks as both sides prepare to renegotiate its funding, size and remit.

The public broadcaster claims that it has already squeezed more than £1 billion in costs out of its operations since its funding was capped five years ago, and warns that popular programs and channels will have to go if it doesn’t get more money.

On the other side of the table, senior Tories who believe the corporation is too bloated, too left wing and needs to be reined in have been threatening draconian cuts.

Taking over the cost of license fees for over-75s could be disastrous for the BBC, given the rate at which the U.K. is aging.

By the end of the next charter period, in 2026, the cost of paying for the elderly to have free TV licenses could swell to around £1 billion a year — about a fifth of the BBC’s current funding.

The BBC had fought off the change five years ago, during charter negotiations with the last government. Sir Michael Lyons, the BBC Trust's chairman, threatened to resign if the change was imposed and the government backed off. But the BBC had to take on other funding commitments, such as paying for the rollout of rural Internet.

This time, the Conservatives were more insistent as Osborne pushed to find savings ahead of Wednesday's budget.

The Department for Work and Pensions will begin gradually handing over the cost of TV licenses for the elderly to the BBC in 2018, and by 2021 it will be fully off the government’s books, saving more than £750 million a year by then.

Yet the BBC will be able to mitigate the cost through the inflation-linked increase in the license fee, the elimination of its requirement to pay for rural Internet rollout, and the closure of a loophole that allows viewers who watch BBC programs on its online iPlayer service to do so without paying.

The BBC believes these concessions should make the change roughly neutral in financial terms in the first five years.

Beyond that, when the U.K.'s elderly population swells, it would become a huge drain on the public broadcaster.

But it has agreed that after taking over the full cost of the over-75s fees in 2022, when this government’s term has ended and another may be in power, the BBC will be able to decide whether to continue the policy. It could begin means-testing pensioners to see if they can afford to pay for a TV license, reducing the cost significantly, or scrap the entitlement entirely.

A BBC executive said the broadcaster was not “waving flags” in celebration after agreeing the deal, but the terms were less onerous than it may have expected, given that some critics have been pushing for its funding to be drastically cut, services to be scaled back and for the universal, compulsory funding mechanism to be replaced with a voluntary subscription system.

Lord Hall of Birkenhead, the BBC’s director-general, said: “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.”

The Chancellor said: “The BBC is a valued national institution that produces some of the finest television and radio in the world. But it is also a publicly-funded body, so it is right that it, like other parts of the public sector, should make savings.”

Opposition politicians were angry that the license fee deal was struck behind closed doors, and that the public broadcaster has been made to shoulder the cost of a political policy.

Ben Bradshaw, a Labour MP and former Culture Secretary, said that forcing the BBC to fund free license fees for the elderly turned the BBC “into a branch office of [the] Pensions Department.” He said the BBC Trust should have resigned in protest, as their predecessors threatened to do when politicians tried to introduce the change five years ago.

Forcing licence-payer to fund over 75's concession turns BBC into branch office of Pensions Department & badly undermines its independence — Ben Bradshaw (@BenPBradshaw) July 6, 2015

Mark Thompson, the BBC director-general who resisted taking on the over-75 commitment in 2010, and is now chief executive of The New York Times, said in 2011 that the change was considered “completely unacceptable” by the BBC when it was first floated.