THE BBC is to call a halt to its 80-year history of expansion with an admission that the public will not tolerate increases in the real cost of the licence fee.

Michael Grade, the chairman, will this week launch the corporation’s campaign for the renewal of its royal charter, which expires in 2006, by announcing a new era of consolidation and retrenchment.

The 28,000-strong staff will be cut, half of all network programme production will shift out of London, and non-core commercial ventures, including books and magazines, could be sold off.

All the BBC television, radio and internet services will need to meet a “public value” test to stay on air. However, senior BBC managers said they will fight hard to resist any demands for the privatisation of Radio 1, Radio 2 or BBC3.

Informed sources said Grade and Mark Thompson, the new director-general, will break with precedent by accepting that in future the £121 television licence fee will, at most, increase in line with inflation.

One senior executive said: “The days of empire building are over. The range of alternatives to the BBC is now so great that seeking to charge more would only backfire.”

The launch on Tuesday of the BBC charter campaign, called Building Public Value, is expected to lay down general principles rather than spell out practical changes. These will follow in the autumn, with reviews already under way, and include:

Commercial activities, currently employing 6,000 staff, are to be rationalised. Magazines and book publishing that have no direct link to BBC programmes may be axed, after persistent claims of unfair competition from private sector rivals.

Thompson warned that fresh spending cuts were necessary. He disclosed that the BBC was in debt, with an overdraft thought to be about £100m, and said “complacency and smugness” would not win a new charter.

Under Dyke, the BBC enjoyed four consecutive years of growth in the licence fee, which raised £2.66 billion in the latest financial year. Encouraged by the government, he used it to mount a dash for expansion, launching more new national BBC services during 18 months than in the first eight decades of its history.

Rivals such as Sky News will watch closely how rigorously the BBC subjects its output, such as the News 24 channel, to a new “public value test”. Carolyn Fairbairn, the BBC’s director of strategy, said: “We need to ascertain what is the public value behind any BBC service rather than just the market impact.”

In a move calculated to stem the threat of the BBC being made answerable to Ofcom, the telecoms and media regulator, Grade will bring in measures to give the governors greater independence. He will say that they must be able to draw on their own research and policy staff, so that they have the resources to challenge the BBC’s executives.

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