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Communications minister Lord Carter's Digital Britain report yesterday dashed hopes of an imminent resolution to Channel 4's future funding, concluding that further work is needed on the merits a BBC Worldwide/Channel 4 joint venture. However, the Government insisted it is ready to "facilitate" such a joint venture should it be agreed.

It also ruled out a partial privatisation of Channel 4 - for example, by facilitating a merger with a rival such as Five. It concluded this option "could not be assured of delivering" the broadcaster's "policy objectives" over the long term.

While not naming Five directly, Channel 4 chairman Luke Johnson said it welcomes the Government's "explicit rejection of a partial privatisation of Channel 4 through a forced commercial merger".

Johnson and Channel 4 chief executive Andy Duncan welcomed Carter's backing for the formation of a joint venture between Channel 4 and BBC Worldwide to secure its future.

Johnson said such a joint venture "remains our preferred means of securing more sustainable funding to support our public service delivery and we look forward to confirming with BBC Worldwide in the near future the proposed terms of our partnership".

Duncan said: "Channel 4 and BBC Worldwide have made considerable progress towards agreeing the structure, scope and operation of a substantial joint-venture."

Meanwhile, the BBC Trust reacted angrily to plans for commercial media players to gain direct access to part of the licence fee for the first time, to finance the provision of local TV news beyond the BBC.

BBC Trust chairman Sir Michael Lyons said: "The licence fee must not become a slush fund to be dipped into at will, leading to spiralling demands on licence fee-payers to help fund the political or commercial concerns of the day.

"This would lead to the licence fee being seen as another form of general taxation. The Trust will not sit quietly by and watch this happen."

He also criticised Carter's endorsement of the formation of independent consortia to fill the void in regional TV news provision created by ITV's future withdrawal from the space.

Lyons said: "The Trust is not convinced of the proposal in the Digital Britain report to apply any of the surplus to fund a second regional news operation. "There has not yet been a full and open debate about the suggested costs of these services, and it appears the current proposals have failed to take into account potential sources of commercial funding as well as alternative sources of public funding."

ITV welcomed Carter's blessing for it to give up the bulk of its public service programming commitments - such as scaling back its regional news output.

"ITV warmly welcomes the Government's confirmation that the costs of our public service licences exceed the benefits," the company said in a statement.

"In particular, we are pleased the Government has endorsed Ofcom's proposal for the sustainable provision of plurality in nations and regions news using a combination of public funds and ITV1's schedule."