Lucy Frazer on Thursday announced a £10.50 rise in the annual fee, lower than the BBC expected.
The household payment, which funds much of the corporation’s operations, had been frozen at £159 and was set to rise in line with inflation next year.
However, the expected 9 per cent increase – which would have meant an increase of around £15 from April 2024 was reduced by the Government.
Speaking in the Commons, Ms Frazer said the increase will instead be based on September’s consumer prices index (CPI) rate of inflation which was 6.7 per cent.
This will mean an increase of £10.50 to £169.50 per year.
She also announced a review into the licence fee model, which will look at alternative funding and report next autumn.
The Culture Secretary wrote in the Daily Mail: “I recognise that a £10.50 increase will be felt by households. The number of licence fee payers is declining, with an increasingly competitive media landscape. We need to make sure that the cost of the BBC does not rise exponentially, nor that it is borne by a smaller number of licence fee payers.
“And it is our job to think beyond tomorrow. We know that if we want the BBC to succeed, we cannot freeze its income. But at the same time, we cannot ask households to pay more to support the BBC indefinitely.
“The BBC understands – as we do – that the licence fee was established in a completely different era to the one we are in today. The entire media landscape has been reshaped by the advent of new technologies and streaming services. We cannot bury our heads in the sand. This is an issue that needs to be tackled head on.
“We need to ask searching questions about the licence fee in the long term. Would other models help the BBC generate commercial revenue from its huge range of creative output? How can we best support the BBC while keeping costs down for households? To help us answer these questions, we are launching a review to look at a range of options for funding the corporation.
“It will look at the evidence, speak to experts and analyse the options. It will conclude its work so it can inform the next BBC charter in 2027.
“It will also specifically look at the issue of criminal prosecution of the licence fee – something I personally feel is morally indefensible in modern times – an issue that can only be changed at the charter review.”
People found guilty of using television receiving equipment without a licence can be prosecuted and fined up to £1,000.
A prison sentence cannot follow for a TV licensing conviction although the court may decide to impose one on someone who deliberately refuses to pay court fines.
The BBC has already started making £500 million of savings and reassessing its priorities because of the licence fee freeze over the past two years and rising inflation, and the corporation said the latest announcement will “require further changes”.
An expected funding gap of around £90 million, due to the licence fee not rising more, will be “felt by audiences”, the National Union of Journalists (NUJ) has warned.
Concerns were raised about the move by opposition and Conservative MPs.
The BBC board said in a statement: “We note that the Government has restored a link to inflation on the licence fee after two years of no increases during a time of high inflation.
“The BBC is focused on providing great value, as well as programmes and services that audiences love. However, this outcome will still require further changes on top of the major savings that we are already delivering.
“Our content budgets are now impacted, which in turn will have a significant impact on the wider creative sector across the UK.
“We will confirm the consequences of this as we work through our budgets in the coming months.”
The Government said it is committed for the licence fee to remain until the current Charter period ends in December 2027.
A No 10 spokeswoman said: “We know that family budgets are stretched and that’s why the Government has stepped in. We’ve done that following two years of licence fee freezes and we’ve acted to minimise this year’s increase to less than £1 per month.”