The British Internet Publishers' Association has welcomed what it described as "the reining in" of the BBC by the government, which will enforce a below-inflation rise in the licence fee.

The Bipa chairman, Hugo Drayton, said the BBC needed to be more selective in the services it operates.

"The problem is they have huge funding and can do everything. They feel they have a God-given right to do that, but they should be selective," he added.

"That would help both the commercial sector and the economy. I'm not a fan of Gordon Brown, but I am glad the BBC is finally being reined in."

Mr Drayton said the priority should be high-quality programming that could not be easily covered by the commercial sector, adding that Greg Dyke's tenure as director general has been "a bad appointment".

"[Greg Dyke's] a great guy for commercial TV because his DNA is to be successful in ratings and popular programmes. That's right for ITV but wrong for the BBC," he added.

He said it was "ludicrous" for the BBC to try to compete with the commercial sector, adding that the public should not be funding things like the £18m reportedly paid to Jonathan Ross for his new three-year contract.

"ITV is crying out for lifeblood. Why does public service broadcasting look so similar to commercial - and why are we funding that?" Mr Drayton said.

The BBC had asked for an increase of inflation plus 1.8% to fund new digital services such as on-demand radio and TV, the digital infrastructure for Freeview and high definition TV, as well as new content and local investment. The extra funding costed by the BBC totaled about £5.5bn between 2007 and 2014.

Instead, the government has agreed a much smaller rise of 3% for next year and 2% for the three following years.

That is below the current inflation figure of 3.9% and means the BBC will have to cut at least £2bn from its spending plans.

The BBC had outlined £700m to be spent on digital infrastructure and a further £1.2bn to be spent on on-demand services and interactivity, though it is not yet clear how the new licence fee arrangement will restrict these plans.

Mr Drayton described on-demand and catch-up TV as useful public services that people want, but said that in developing services such as the iPlayer, the BBC has an obligation to share that technology with the commercial sector.

"It's public money and they can't use that to make and build their own empire. I'm sure in Ashley's [Highfield, the BBC director of new media] shoes I'd do the same thing. But the BBC has only ever paid lip service to sharing the spoils of that public money and have never actually done it."

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