MPs have criticised BBC chief Lord Tony Hall for his handling of negotiations on the TV licence fee for over-75s.
The BBC agreed to take on responsibility for funding the scheme as part of the charter agreement hammered out in 2015.
The House of Commons Digital, Culture, Media and Sport Committee blamed both sides for the secret nature of the negotiations.
While the BBC complained about the Government approach, MPs “found little evidence of transparency in the Corporation’s decision-making either”.
It was a “flawed process on all sides that gave no opportunity for consultation with licence fee payers,” their report said.
MPs said that “the criticism that funding negotiations should not have happened ‘behind closed doors’ applies as much to the BBC as it does to the Government”.
They said minutes for the meetings should have been properly recorded but are incomplete.
The BBC could have acted earlier to communicate the likelihood that they would not be able to fund a full licence fee concession for people over 75 from 2020, they said.
But it was wrong of the then government to seek “to ‘bounce’ the BBC into accepting a deal”.
More generally, the MPs’ report criticises “poor management, leadership and governance at the BBC”.
It said the problems surrounding the use of Personal Service Companies – its arrangements with its freelancers, including presenters – may have arisen from poor management.
“Future issues may emerge as a result of the same management and governance approach,” the report said.
On the gender pay gap, the MPs said “there is still a long way to go at the BBC”, even though the broadcaster is continuing to take steps to resolve the issues.
Criticising BBC director-general Lord Hall, the report says he should have sought “the formal agreement of the (now defunct) Executive Board before recommending (the deal) to the BBC Trust”.
MPs said that free BBC TV licences should be restored for all over-75s.
Committee chairman Damian Collins said the BBC had “put itself” in an “invidious position” as an “administrator” of welfare benefits.
“It agreed to fund a pensioner benefit that it couldn’t afford and as a result, false reassurances were given to the over-75s that their free licence fees would be maintained,” he said.
“The BBC and the Government must reach an agreement to allow the funding of free licence fees for the over-75s to continue after 2020.
“The BBC finds itself here as the result of a deal done behind closed doors that allowed no transparency for licence fee payers.
“Detailed minutes which would have shone a light on the crucial decision making process are absent or incomplete which is a matter of great regret.”
The report also says that overall finances of the BBC paint a “disturbing picture” – with pressure on the corporation’s budgets likely to get worse.
Mr Collins said: “We are seeing clear evidence that the funding model of the BBC will become unsustainable without substantial increases in commercial revenue from BBC Studios and new subscription on demand viewing services like BritBox.”
Licence fee negotiations for 2021 should be “conducted in a wholly different way”, MPs said.
The report said the “BBC could have acted earlier to communicate the likelihood that they would not be able to fund a full licence fee concession for people over 75 from 2020.”
The “handling of the announcement has served to erode public confidence in the way that the BBC spends its money”, it said.
Sir David Clementi, chairman of the BBC, said: “Under the 2015 agreement, the BBC was given responsibility for the policy, and related funding, of the concession for over 75s.
“We are pleased that the committee recognise that there was no automatic assumption that the BBC would continue to bear the cost of these free TV licences. There is also clear recognition from the committee that it would be unsustainable for the BBC to take on the full cost of all these free licences alone.
“The committee report is also clear that the value of the licence fee will continue to be under pressure from inflation in the TV sector.
“The committee say that the Government’s process in 2015 was flawed and we agree with this; it was never a process the BBC would have chosen. That’s why there must be a different way of doing things in the future.
“In terms of the agreement itself, we are satisfied that it was properly discussed within the BBC and properly authorised.
“We will continue to implement the decision we have taken – after extensive consultation – on over-75s licence fees with great care and responsibility.”
Caroline Abrahams, charity director at Age UK, said they agree with the committee “that the Government should never have passed responsibility for the over-75s’ free TV licence on to the BBC and that both parties should now get together and work out a solution that ensures this important entitlement continues”.
She added that “the Government and the BBC would be wise to sit down and broker a solution now that keeps the over-75s’ TV licence free, before all hell potentially breaks loose next summer.
“Older people will be immensely pleased and relieved if this happens, as will be the almost a million who have signed petitions in support of them.”
A Government spokesman said: “We’re disappointed with the BBC’s decision not to continue free licences for the over 75s.
“We’ve been clear that we want and expect it to continue this concession.
“The 2015 funding settlement was agreed with Parliament and the BBC, and the then director-general said it was ‘a strong deal for the BBC’ and provided ‘financial stability’.
“Taxpayers want to see the BBC using its substantial licence fee income in an appropriate way to ensure it delivers for UK audiences. We will respond to the Select Committee report in due course.”
Voice of the Listener and Viewer (VLV) chairman Colin Browne said: “The VLV’s clear view has been that the cost of providing free licences for the over 75s, and the policy behind the concession, should be matters for government and that the BBC should not fund this concession.
“We therefore welcome the Committee’s conclusion that the Government should set out proposals for how it can support this concession in the future.
“We believe that it is wrong in principle for the BBC to be determining the policy, and bearing the cost, of what is essentially a welfare benefit.”