The BBC’s 87-year monopoly of the licence fee is set to come to an end as ministers signal that some of the £3.6 billion of cash it generates can be made available to fund regional news on ITV.

Digital Britain, a White Paper produced by Lord Carter of Barnes, the Communications Minister, will offer a lifeline tomorrow to local newspaper publishers and other media groups that want to produce ITV’s six o’clock regional bulletins instead of the commercial broadcaster.

However, because regional news is becoming increasingly uneconomic, the document is expected to indicate that about £50 million a year of the licence fee could be “top sliced” and set aside for other news producers. That move risks placing Labour ministers at loggerheads with the BBC less than a year before a general election. The corporation has long opposed any top slicing of the £142.50 levy, which is paid by 25 million homes.

A spokesman for the BBC Trust drew attention to remarks made by its chairman, Sir Michael Lyons, last month when he said: “People would do well to remember that licence feepayers give us their money in good faith, believing it will be spent on BBC services and content.”

Ministers are, however, desperate to protect an alternative to the BBC in regional news. There is unused cash from the £150 million a year portion of the television levy used to fund the costs of switching over the nation’s television from analogue to digital.

Children’s programming is also likely to benefit from licence fee money, with some cash set aside to help make programmes such as Horrid Henry or Jungle Run for ITV and, possibly, for Channel 4. That, though, is not yet certain, with details of the Digital Britain report still being hammered out before its release tomorrow.

Worries about the long-term viability of the state-owned Channel 4 are expected to be resolved, with Lord Carter giving support to a partial merger between it and BBC Worldwide, the commercial division of the BBC. Channel 4 says it needs some sort of extra subsidy to continue producing news and current affairs.

That would represent a victory for Andy Duncan, Channel 4’s chief executive, who has long been lobbying for a public subsidy. It would be a blow to the rival ambitions of Five, the privately owned channel which screens CSI, which had been touting itself as an alternative merger partner, offering to bale out Channel 4 without requiring extra public intervention.

Digital Britain will also try to tighten up rampant internet piracy of music and films, by trying to encourage the creation of an industry body that will have the power to censor pirate websites so nobody can log on to them.

Neil Berkett, the chief executive of Virgin Media, is today expected to spell out an alternative strategy as he unveils plans to launch a massive library of music available for unlimited download for a small fee in partnership with Universal Music, the record label behind Amy Winehouse.

Virgin Media believes there is no need for a bureaucratic body to decide what sites people can visit, and that piracy can be curbed by agreement with individual customers. Anybody who signs up for its unlimited music service will also have to agree not to visit pirate websites, or risk have their internet access cut off for one hour. “We won’t be suspending people’s internet connections. It will be more of an intermission to encourage good behaviour,” said one source familar with Virgin Media’s plans.

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