Chancellor to force 'imperial' BBC to pick up £650m cost of free TV licences for the elderly

The BBC will be forced to pick up the £650million cost of providing free TV licenses for pensioners under radical plans set to be included in George Osborne's budget this week.

Mr Osborne this morning confirmed the corporation would 'make a contribution' towards £12billion in benefit cuts needed under Tory plans to eliminate the deficit.

The Chancellor claimed the BBC had become too 'imperial' in its size and could make savings without scrapping popular shows like Strictly Come Dancing.

Speaking on the BBC's Andrew Marr show this morning, he singled out the BBC website for attack – claiming it was a 'good product' but had become too big and was stifling competition.

The raid on the BBC's finances is set to be included in the budget on Wednesday, when Mr Osborne will set out how he intends to eliminate the £75billion a year deficit in the nation's finances.        

Mr Osborne confirmed this morning that he had identified all £12billion in welfare savings he needs, alongside £13billion in cuts to Whitehall budgets and £5billion extra raised from tighter rules on tax avoidance.

However, the Chancellor said he wanted to go even further than already outlined in order to achieve a surplus – where the government spends less each year than it raises in taxes.

Mr Osborne confirmed he would lower the welfare cap to £23,000 in London – and even lower in the rest of the country.

But the Chancellor's raid on the BBC budget is likely to prove one of the most controversial measures.

Under a deal reportedly reached between Mr Osborne and the BBC director general Tony Hall, the corporation will foot the bill of providing 4.5million free television licences for the over-75s.

At the moment the cost of the licenses – worth £145.50 a year – is covered by the Department for Work and Pensions.

The £650million bill is the equivalent of a fifth of the BBC's licence revenue – raising fears the corporation will have to close popular stations like Radio 2.

However, the BBC will be allowed to make up some lost revenue by charging customers who use the BBC iPlayer and other online catch-up services.

Under the plans, free TV licence will remain in place until 2020, because that was a Tory manifesto promise.

However, it will then be up to BBC bosses whether to maintain the free licences for the elderly.

Mr Osborne this morning insisted the BBC would not have to cut popular TV shows as a result of the raid on its budget.

'The BBC is also a publicly funded institution and so it does need to make savings and contribute to what we need to do as a country to get our house in order. So we are in discussion with the BBC,' he said.

'I remember five years ago doing a deal with the BBC where actually the BBC... took on GBP500 million worth of responsibilities including things like the BBC World Service,' he said.He played down suggestions that cuts on the scale involved in taking on the cost of free licences for the elderly would mean axing one of the BBC's major channels.

'I was told at the time by people 'They're going to shut down BBC2, they're going to close Radio 4'. They always seem to pick the juiciest fruits on the tree.'

He hinted, however, that the BBC's website is one area where significant savings could be found.

'If you've got a website that's got features and cooking recipes - effectively the BBC website becomes the national newspaper as well as the national broadcaster. There are those sorts of issues we need to look at very carefully,' he said.

'You wouldn't want the BBC to completely crowd out national newspapers.

If you look at the BBC website it is a good product but it is becoming a bit more imperial in its ambitions.'

Mr Osborne will also use this week's summer Budget to launch a clampdown on taxpayer-funded subsidies for hundreds of thousands of higher earners living in social housing.

The Chancellor will announce that local authority and housing association tenants on incomes of £40,000 or more in London and £30,000 in the rest of England will have to pay a market, or near market, rent from 2017/18.

In the case of those living in local authority properties, the extra cash raised will go straight to the Exchequer, where it is expected to raise up to £250 million a year by 2018-19 towards reducing the country's debt burden.

Mr Osborne will argue that 9 per cent of all social tenants in England are now on higher incomes while enjoying the benefit of an average £3,500-a-year per household in reduced rent.

They include more than 40,000 with annual household incomes in excess of £50,000 and a further 300,000 with incomes over £30,000.

The move builds on measures introduced under the coalition that enabled housing associations and local authorities to charge market rents to those on incomes of more than £60,000.