Michael Grade’s sudden departure from the BBC is expected to condemn his former employer to defeat in its battle to win an above-inflation rise in the licence fee.

The outgoing BBC chairman was a key ally of Tessa Jowell, the Culture Secretary, in her battle with Gordon Brown, the Chancellor. The Treasury wants the BBC to be held to a rise of inflation minus 1 per cent.

Mark Thompson, the BBC’s Director-General, conceded last night that “clearly the timing of his departure is not absolutely perfect”, but said that “much of the BBC’s work on the licence fee bid is now done; the ball is in the Government’s court”.

An agreement on the BBC licence fee is due in the next few weeks, with the Corporation asking for inflation plus 1.8 per cent a year for the seven years from April. That would take the fee from its existing £131.50 level to about £178 in 2013.

The cigar-chomping Mr Grade was valued for his political skills and his departure leaves Mr Thompson badly exposed as he assumes the principal responsibility for the negotiations. A threat by Mr Thompson to pull the plug on a move to Salford was badly received by ministers, who shortly will thrash out the issue in Whitehall.

A senior Treasury source said last night that the BBC could not expect to be excluded from the disciplines facing the wider public sector in the 2007 spending review. “It is simply not realistic for publicly funded bodies to be asking for above-inflation increases,” the source said. The Treasury is seeking a four-year deal, compared with the BBC’s hoped-for seven-year deal, and Ms Jowell is understood to have proposed a compromise, five-year agreement. The BBC has stepped back, allowing Ms Jowell to put its case in talks with the Treasury.

Last night, Mr Thompson said that he did not know what would emerge.

As an alternative, the BBC is hoping that, if the Treasury opts for a tough settlement, it might allow a ring-fenced sum to deal with the one-off costs of digital switchover, and an extension to its £200 million overdraft.

Mr Grade’s move to ITV clearly shocked both the BBC and the Government. Mr Thompson was informed by phone in mid-afternoon on Monday. Ms Jowell was telephoned at 6pm to be given the news.

Despite the surprise, the impact on BBC morale appears to have been relatively limited. “It’s very Michael Grade — intuitive and unexpected,” Mr Thompson said. “Yesterday people were saying that BBC bosses were incandescent. I think it was more a case of raised eyebrows.”

Possible contenders for the vacant chairman’s job include Lord Burns, the former Treasury permanent secretary, David Dimbleby, the veteran broadcaster, Sir Howard Davies, Principal of the London School of Economics, and Paul Myners, chairman of the Guardian Media Group.

The vacant job for chairman of the new BBC regulator, the BBC Trust, which Mr Grade was to have assumed, will be advertised at the end of the week, with the hope of filling the £140,000-a-year role as quickly as possible.

Graham Lovelace, a media consultant, said: “The BBC will get over this. It is a great British institution, like Marks & Spencer — and look at how they recovered.

“The stability of day-to-day BBC management is not affected.”

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