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Mark Thompson, BBC director-general, described the reduction as a "realistic funding" that was essential if the BBC is to fulfil the government's goal for digital switchover laid down in the new 10-year BBC Charter.

The BBC had been asking for a 2.3% rise above RPI, which would have equated to a £180 rise by 2013/2014. It is instead now asking for a 1.8% above RPI rise, which the BBC said was well below the £162.66 that the recent Work Foundation report commissioned by the Government says that licence payers would be wiling to pay.

Thompson was on the offensive as he defended the size of the rise and he said that few outside the industry had registered the scale of task ahead in tackling digital switchover.

"This is a project of great size and intricacy. The risks are formidable. If it is under-resourced it will fail. It's as simple as that -- and the failure will impact on many millions of households.

"If all that was wanted in the new charter was a steady-state BBC with the same line-up of services and the same level of quality, we could deliver that well within our current resources.

The BBC said that a tough regime of productivity and cost reduction, including more than 3,500 job cuts within the BBC, will release an additional £355m a year for new investment from 2008 -- a total of £3bn over the next charter.

In a coda to his speech today, Thompson warned of the tough decisions that would lie ahead if its revised bid was rejected.

He said: "We can't do everything. We can't rob existing core services to pay for switchover."

He said that in the event of a low settlement, he would not be able to recommend to the Trust that the BBC should go ahead with the transformational plan for creativity and jobs in the North, based around a new broadcast centre in Salford.

Thompson said: "We would have to find other, more modest ways of increasing our investment in the North."

It is expected that the Department for Culture, Media and Sport will decide the level of the licence fee settlement at the end of the year.

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