The BBC licence fee will return to rising in line with the annual rate of inflation again for the first time in three years next year, as the government also said it will review alternate funding models as part of an “honest” conversation about the long-term future of the corporation. The culture secretary, Lisa Nandy, said that from April next year the cost of an annual BBC licence fee will rise by £5 to £174.50, in line with the average consumer price index (CPI) measure of inflation of 2.96% between October 2023 and September 2024. The increase in the licence fee follows a two-year freeze and a below-inflation increase set by the government for this year that limited the increase to £10.50 as the rate of annual inflation soared. The then culture secretary, Lucy Frazer, reneged on an agreement with the BBC to raise the licence fee by the usual annual average rate of inflation between October 2022 and September 2023, which was running at 9%, for this year’s increase. Instead the government opted to use the lower rate in September 2023 – 6.7% – citing the cost of living crisis for not raising it by the £15 expected by the corporation. The BBC, which has embarked on significant rounds of cuts in recent years as its finances have beccome stretched, said at the time that the lower rise meant it would have to find a further £100m in cost savings. “We welcome confirmation that the licence fee will increase in line with inflation next year,” said a spokesperson for the BBC. “We want everyone to get value from the licence fee and we are committed to delivering trusted news, the best homegrown storytelling and those special moments that bring us together.” Nandy said that the government will also look at the BBC’s funding model as part of the review of its charter, which is due to be renewed in 2027, and has scrapped the Conservative’s separate funding review and the expert panel set up to inform it. “Through the charter review we will have an honest national conversation about the broadcaster’s long-term future,” said Nandy, in a written statement to parliament on Friday. “Ensuring the BBC has a sustainable public funding model that supports its vital work but is also fair and responsible to those who pay for it.” The BBC has said that in real terms the corporation’s licence fee funding has fallen by 30% over the past decade. The government also said it is expanding the simple payment plan (SPP), which was set up to help struggling households pay their licence fee in instalments across a year, which it says will make 9,000 unlicensed homes eligible. At present, unlicensed households are only eligible for the plan if they met certain criteria set out in legislation, such as having been visited by TV Licensing or sought advice from a debt advice charity. The government said that the BBC’s own analysis of an expansion in the SPP criteria suggests that it could double the number of households using the scheme to 500,000 by the end of 2027. “In the short term we are providing the BBC with funding certainty,” Nandy said. “[And] supporting thousands more households facing financial hardship to spread the cost of a TV licence.” The BBC spokesperson added: “We also look forward to the debate about the future and working with the government to ensure sustainable, long-term public funding”.