Greg Dyke on Broadcasting

I was just weeks away from becoming director general when the last licence fee settlement was announced early in 2000. The Davies Committee had been asked to recommend what the figure should be and, after a great deal of analysis, it came up with a set of proposals which the Government then completely ignored.

The main suggestion from Davies was that there should be a digital licence fee which meant that digital viewers, who could receive all the BBC's services, would pay a higher licence fee than non-digital households. The BBC was in favour but the proposal was killed pretty effectively by Rupert Murdoch who told the Government it was unfair to BSkyB and would deter people from switching to digital.

There is some irony in this as these were the days before Freeview. If there had been a digital licence fee when Freeview was launched it's unlikely it would have taken off in the way it has - and become such a threat to BSkyB.

In the end the size of licence fee increase for the first half of this decade was settled in the old fashioned way - in a smoke-filled room. There was a big battle between the then Secretary of State, Chris Smith, supported by the Prime Minister, who wanted the BBC to get an increase of 1.5 per cent above inflation every year for the next six years and the Chancellor, Gordon Brown, who didn't want to make a long-term commitment.

Smith won, and the settlement was seen as generous - although considerably less than the BBC governors and management had asked for. The income rise has turned out higher than inflation plus 1.5 per cent because the number of households in Britain is growing by around 0.5 per cent a year and they are all new licence-fee payers. This has meant that the BBC has received inflation plus 2 per cent a year for the past five years. It is now asking for that to be continued for another five years.

Compared with the rest of the public sector, the BBC's budget increase hasn't turned out to be that generous. The BBC has had a smaller increase over the past five years than virtually every other area of public spending with the exception of defence.

But compared with most of commercial television and radio the BBC has done well. The settlement was partly based on the expectation of advertising revenue in the commercial sector continuing to grow in the early part of this decade, whereas there was a big downturn. This has meant that in real terms ITV's advertising revenue still hasn't got back to its 1999 figure.

So should the BBC get another "generous" settlement? There are a number of big factors in favour which need to be taken into account. The first is the cost to the BBC of carrying out the Government's ambition of switching the nation to digital by 2012. For all broadcasters the next five years are the expensive ones when they are still paying for analogue transmission while expanding the digital system. And if it is true that the Government wants the BBC to pay a disproportionate amount of the cost in this period then it will have to support an increase in the licence fee.

The second factor is the BBC's planned move to Manchester for several of its services. Opposition to this is growing and it will be costly, but for those of us (and I include Mark Thompson and Michael Grade in that group) who believe the BBC has to be less south-east of England biased, the move is essential and has to be paid for. The BBC governors who oppose the move will only support it if there is a "generous" licence-fee settlement to pay for it.

There is a third argument why the BBC should get a reasonable settlement. As more and more homes get multi-channel television it is inevitable that commercial television will be spending less on home-grown programmes. This means that if we want our television system to continue to reflect British society with well produced British programmes, the role of the BBC will become more, not less important.

Commercial television and radio companies will argue that if they aren't getting extra money why should the BBC have it - especially when, by making thousands of redundancies and selling assets the corporation has ensured it is pretty well funded anyway.