Income from the Licence Fee
4. The BBC's principal source of income is a licence
fee levied directly on the television-viewing public. From 1 April
1998, a colour licence costs £97.50 and a black and white
licence £32.50.[10]
In 1996 the then Government commissioned a study on the BBC's
future funding needs taking account of the costs of digital services.[11]
This study concluded that there was greater scope for efficiency
savings within the BBC than the Corporation itself had allowed
for its own plans. It considered that the actual level of efficiency
savings would broadly off-set the additional expenditure required
for digital services over a five year period, with costs in excess
of savings from 1997-98 to 1999-2000 but below them in 2000-01
and 2001-2002.[12]
Accordingly, in December 1996, the then Government announced a
five-year formula for the licence fee, with increases above the
Retail Price Index (RPI) in 1998-99 and 1999-2000 and below the
RPI in 2000-01 and 2001-02.[13]
In confirming the increase for 1998-99 in December 1997, the new
Government concluded that the five-year formula "remains
appropriate".[14]
5. The Agreement between the Secretary of State and
the BBC allows for the Government to change the methods of financing
the BBC from 1 April 2002 onwards.[15]
On 14 October 1998, the Rt. Hon. Chris Smith MP, Secretary of
State for Culture, Media and Sport, announced the establishment
of an independent review panel to examine the BBC's funding from
2002. He decided that it was not an appropriate time to consider
alternatives to the licence fee as the main source of BBC funding
so that the review would start from the position that the licence
fee was sustainable at least until 2006.[16]
The panel will report by the end of July 1999, after which there
will be a period of consultation.[17]
6. The BBC Governors state in the Report and Accounts
for 1997-98 that "the BBC will need a dynamically growing
income if it is to continue to fulfil its key role in broadcasting
in future years".[18]
In part this refers to the growth potential of the BBC's non-licence
fee income, which we consider below, but the comment might also
be thought to have implications for the licence fee. Sir Christopher
Bland told us that it would be "premature" for the BBC
to state a figure for the future level of the licence fee, in
view of the forthcoming review and the fact that the final decision
lay with Parliament. Nevertheless, he drew attention to certain
costs escalating above inflation which might not be off-set by
efficiency savings. He saw it as the role of the BBC to show what
impact "differing levels of licence fee would have in terms
of achieving [the BBC's] objectives".[19]
7. When asked whether an end to the licence fee would
mark the end of the BBC, Sir Christopher Bland replied that it
would represent "the end of the BBC as we know it".
Without the licence fee, there would be "a complete loss
of one of the BBC's prime roles which is a universality in terms
of radio and television broadcasting".[20]
He considered that services which were "an integral part
of our public service offering" and which should be "universal",
which he took to include services such as BBC Online and News
24, should be funded from the licence fee. If parts of the BBC's
public service offering were to be funded by advertising or sponsorship,
there would be no philosophical defence against other parts of
public service broadcasting being funded the same way. It would
be "the thin end of the wedge".[21]
8. We expect to consider the future level and
scope of the television licence fee during an inquiry into the
BBC in the Autumn of 1999 following the review of the BBC's funding
which the Government has recently announced. We make comments
later in this Report about appropriate sources of finance for
particular services.
9. The total income for the BBC from the licence
fee income is not simply a function of the level of licence fee.
Almost half of the increase in the BBC's licence fee income in
1997-98 arises from an increase in the number of licences purchased
as opposed to the increased cost of the licence.[22]
When the BBC assumed responsibility for collection of the licence
fee in 1991, the combined cost of collection and evasion was equivalent
to about 16 per cent of the BBC's income from the licence fee.[23]
Since then, it has fallen to 13.1 per cent in 1996-97 and 12.6
per cent in 1997-98.[24]
The BBC expects it to fall further to 12.2 per cent of licence
fee income in 1998-99.[25]
The only relevant costs which appear on the expenditure side of
the BBC's balance sheet are those for collection and enforcement,
which rose by 13 per cent from 1996-97 to 1997-98, but the BBC
had no doubt that sensible increases in expenditure in this area
more than re-paid themselves in additional income.[26]
At the same time as evasion has fallen, the number of people receiving
custodial sentences for failure to pay fines arising from non-payment
of the licence fee has been reduced by two-thirds.[27]
We welcome the progress made by the BBC, since it assumed responsibility
for collection of the licence fee, in reducing the combined cost
of collection and evasion. It is particularly welcome that this
reduction has taken place at a time when the number of those receiving
custodial sentences for non-payment of the licence fee and subsequent
fines has fallen.
10. The review recently announced by the Secretary
of State will "consider the current structure of the concessionary
licence scheme, and whether a suitable alternative structure could
be available".[28]
The anomalies arising from the current system have long been a
subject of great Parliamentary interest, as illustrated by the
recommendation for a review by the National Heritage Committee
in 1993.[29]
Ms Hodgson looked forward to the "difficulties and inequities"
of the current system of concessions being examined by the review,
but hoped that any proposals would be "revenue neutral".
She was also concerned that any changes should not affect the
general "sense of ownership" of the BBC amongst the
public and did not make enforcement more difficult by allowing
people to "rent a Granny".[30]
Sir Christopher Bland was also anxious lest a system of concessions
funded by general taxation might erode the BBC's independence.[31]
We consider the system of concessionary licences to be one
of the most pressing matters to be considered by the funding review;
it is a matter which we expect to consider next Autumn.
10 Report and Accounts of the BBC for 1997-98,
p 60. 
