Select Committee on Culture, Media and Sport First Report


The licence fee

121. In the 1920s the Government took the decision not to allow commercial advertising on air to fund the fledgling BBC but to require the purchase of an annual licence in order to own and operate sound-receiving apparatus. In the early years the system was operated by the Post Office under the combined authority of Wireless and Telegraphy Acts 1904-1929 (later consolidated in the 1949 Act).[103]

122. The first wireless licence was issued in November 1923 for ten shillings (50p). At the end of 1923 200,000 licences had been issued and by 1928 this had risen to 2,500,000. The Post Office retained 12.5% of the fee to cover administration. Of the balance, the Treasury took 10% of the first million licences, 20% of the second million and 30% from the third million in excise duty. So in 1928, the amount raised by the licence fee was £1,250,000: the Post Office took £156,250 and the Government a further £196,875. The BBC therefore received 71.75% of the fee at that time.

123. The first combined Radio/TV licence, £2, was issued in June 1946. In October 1963 excise duty on licences was abolished and the BBC received the full amount. The first supplementary licence fee for colour television was introduced in January 1968. Radio-only licences were abolished in February 1971 (along with the requirement for a separate licence for car radios).

124. As a result of the Broadcasting Act 1990, the BBC was made responsible for licence administration and TV Licensing is sub-contracted by the BBC to collect the licence fee on its behalf (at a cost of £150.8 million in 2003-04).[104]

125. Currently the licence fee is payable by anyone owning a "television receiver" and is collected under the authority of the Communications Act 2003. In March 2004, there were 24.5 million licences in force (20.4 million colour; 0.1 million b/w; 3.8 million over 75s; and 0.2 million concessionary).

Funding options

126. Possible alternatives to the licence fee as a source of funding for the BBC have been examined periodically. Reports were produced by the Peacock Committee[105] in 1986 and the Davies Panel[106] in 1999. The Davies Report recommended against the introduction of advertising, sponsorship or subscription on the BBC's public services. Peacock had similarly supported the retention of licence fee funding, while suggesting in the longer term that subscription could become technically viable. The subsequent development of conditional access systems does open up the possibility of making access to television services contingent on suitable payment, though in a way that is platform dependent. In this context, we note that such a subscription option for Freeview is not yet feasible, partly due to the absence of a "return path", by which two-way contact between broadcaster and viewer could be established.[107]

127. Referring to the BBC funding review of the Davies Committee in 1999, the Institute of Practitioners in Advertising (IPA) rehearsed the arguments against the main alternatives to the licence fee: direct funding, advertising, sponsorship and subscription. Direct funding by taxation or grant "would render the Corporation vulnerable to political mood and the potential loss of editorial and political independence". Limited funds existed in the broadcast market as a whole to support the other options which could all affect the nature of BBC programming while, in the case of subscription, "negate the fundamental public purpose of the BBC as a free-to-air broadcaster." In the absence of an appropriate alternative funding mechanism, the IPA views "the licence fee as a necessary evil for the foreseeable future."[108]

128. Equity's submission expressed the belief that, despite its imperfections, the continuation of the Licence Fee was essential for the survival of high quality, diverse and original public service programming on the BBC. Furthermore, according to Equity, the licence fee should continue to rise above RPI annually to provide for innovation and to allow the BBC to fulfil its public service remit. The possible implications of changing the BBC's funding may be judged by comparisons with the relatively poor examples of public service broadcasting found in Australia, New Zealand, Canada and, especially, the USA.[109] Sir Christopher Bland put it to us that, without licence fee funding, and forced to compete openly on the market, an American-style public service "begging bowl stub" might be the end result.[110]

129. ITV point to the benefits associated with three strong and separate funding streams for broadcasting in the UK: the licence fee, advertising and subscription; in total amounting to some £10 billion. Were the BBC to carry advertising, it would simply "cannibalise revenues currently available to the commercial sector". According to ITV's analysis, if BBC One and BBC Two were allowed to show as much advertising as their commercial rivals, only 5% of net advertising revenue would be added to the total pot.[111]

130. The lack of commercial advertising is a key attraction of the BBC and to carry advertising would impact significantly on existing commercial broadcasters. An inescapable conclusion is that the existing market could not sustain the freedom of the BBC to offer advertising time on its channels. Funding the BBC via a direct government grant could lead to uncertainty over long-term funding, and act as a break on creative risk-taking and innovation.

131. S4C benefits from public funding, in the form of grant-in-aid, and selling advertiser airtime. However, there may be difficulties in applying mixed funding mechanisms to larger broadcasting organisations such as Channel 4 or the BBC. For example, it would be essential to ensure that any public funds were not used to subsidise discounts to advertisers. Citing instances of market distortion, the Association of Commercial Television in Europe, the Association Européenne des Radios and the European Publishers Council have advocated a migration to a single funded model for public broadcasters in Europe.[112] Public Voice has suggested that, while there is no justification for distributing licence fee money to private commercial providers (such as ITV) the case for so doing to community and not-for-profit media ought to be examined.[113]

132. John Hambley told us that the licence fee was liable to go on for quite a long time, though it would not be sustainable in the longer term.[114] The written evidence he submitted on behalf of Artsworld Channels Ltd noted that the BBC's purpose should be to provide what a civilised society demands and deserves from its broadcasting that cannot be provided by any other means. "If other means are available, as increasingly they are, then compulsory public funding is not justified."[115] The Artsworld submission adds: "It is no longer necessary to tax citizens to ensure that they can receive television programmes of entertainment, history, art, news, films, opera, religion, sport or DIY. It is no longer reasonable to prosecute, fine or gaol them when they fail to pay an ever-increasing licence fee for BBC programmes they choose not to watch, or for BBC channels they cannot receive."[116]

133. Some of the objections to the licence fee can be tempered by a common belief that the BBC contributes to the raising of standards across the broadcasting sector. Furthermore, when the BBC is able to return, with digital switchover, to universal service provision then the case for public funding of some kind would be reinforced.

134. The licence fee remains, as our predecessor committee stated, the least worst way of funding the BBC. While it is regressive and unfair on the disadvantaged in society, the evidence we received clearly indicates that there is no other viable and credible alternative which would ensure the current universality of access.

A financial settlement

135. Having accepted, for the time being, the necessity for the licence fee, the question arises of its level. In written evidence, ITV commented on the BBC's "exceptionally generous" licence fee settlement, which covers the period from 2000-01 to 2006-07. This has seen the licence fee increase annually at 1.5% above the rate of inflation; RPI + 1.5%. "Had the original 1996-97 settlement been maintained the BBC would be enjoying a substantial annual income from the Licence Fee of £2.25 billion by the end of the current Charter period. As a result of the 1999 revision it will be enjoying an income of circa £3.1 billion."[117]

136. Both ITV and SMG[118] have argued that the present licence fee settlement is generous, especially in view of anticipated gross income growth resulting from an overall increase in the formation of households. This view was reportedly shared by the present BBC Director-General who, when Chief Executive of Channel 4, described the BBC as basking in a "jacuzzi of spare public cash".[119]

137. The rationale for the extra funding was the additional cost of new digital services and the wider drive towards digital switchover. ITV believes an RPI minus X formula should be reintroduced when the present settlement expires. This would encourage the BBC to focus on meeting its core public services as well as driving further efficiency improvements.[120]

138. Ofcom has not carried out a detailed assessment of the BBC's future funding requirements, but thinks that there are two important considerations for the funding settlement over the next Charter period:

  • the BBC does not envisage any growth in the breadth of its services and is rightly committed to further efficiency savings; and
  • the BBC's income will increase by more than the annual rise in the TV licence fee because the number of UK households is projected to grow. After ten years, the BBC can expect to receive an extra £230 million every year, from the projected growth in households alone.

139. In order to ensure a robust financial model in the more distant future, Ofcom suggests that the Government should consider the case for the BBC to supplement its income with limited subscription services to fund any future expansion.[121] While recognising that some BBC goods and services, such as magazines and DVDs, are already available on "subscription", we do not believe this should be extended to broadcast or online services.

140. The level of the licence fee is a responsibility of the Secretary of State for Culture, Media and Sport. She exercises her powers in this regard by statutory instrument, subject to annulment in pursuance of a resolution of either House of Parliament. In written evidence, Carole Tongue and David Ward have suggested the creation of a Council for Public Service Broadcasting, accountable to Parliament, with the task of assessing the financial needs of the BBC and thus the level of the licence fee.[122] Professor Richard Collins has said that such a body, modelled on the German KEF, might review the licence fee every three years.[123]

141. So long as the licence fee remains the principal funding mechanism for the BBC, responsibility for setting its level should rest with the Secretary of State, subject to continued Parliamentary sanction. The process by which a funding formula is reached must be made transparent and public. We do not anticipate there being persuasive arguments in favour of above-inflation increases beyond 2006-07 when the current funding settlement ends.


142. One of the main objections to the licence fee is, of course, its regressive nature. The Davies report commented that "while the licence fee is a good way of financing public service broadcasting, it is a very bad way of taxing the public."[124] With the exception of the welcome, and long overdue, suggested 50% concession for blind people (which the Government went on to implement) the Davies panel was unable to identify additional ways of making the system "obviously" fairer.

143. Were the licence fee ever to be replaced as the main funding mechanism for the BBC, it would be essential to include equivalents to existing concessions, such as those applying to blind and partially-sighted people.[125]

144. There are practical problems associated with introducing a more progressive licence fee, such as possible administrative complexities associated with extending concessions. Some very welcome concessions, including the system of free licences for people over 75, have the administrative (not to mention social) benefit of avoiding any form of means testing.

145. However, our constituents regularly bring to our notice a number of anomalies under the present system. Examples have occurred in relation to servicemen and women in barracks (consequential on the ending of a second home concession in 1996) and to people living in sheltered accommodation or other forms of shared housing.

146. We recommend that the operation of concessionary schemes, for example in relation to accommodation for residential care, be reviewed by the DCMS to ensure that they are effective and consistent and that oppressive anomalies are eliminated. Consideration should be given to extending concessions in other areas of multiple occupation such as student halls of residence, live-in staff accommodation and service barracks.

147. The previous Committee's report into the funding of the BBC identified anomalies, and injustices, in the licence fee collection and payment methods being deployed.[126] Among more recent criticisms is one from the Institute for Public Policy Research: "Bizarrely, the current methods of payment, such as the Cash Easy Entry Scheme, established to best aid the least well-off, require a higher licence fee payment in total."[127]

148. We recommend the BBC carry out further work on the development of easier payment methods, including by credit card. People who pay by instalments must not be financially penalised for doing so.

149. The BBC should report annually on the collection of the licence fee, providing an assessment of its equity, and the operation of concessions and proposals for their modification or extension.

Collecting the licence fee

150. In addition to the nature of the licence fee and its level, there remains controversy over how it is collected. In his criminal courts review, one of the many subjects covered by Lord Justice Auld was TV licence evasion. In this context the role of the BBC was summarised: "The licence fee is a standard hypothecated tax on access to television in its entirety (not just on BBC channels). The Government decides what proportion of the licence fee income should go to the BBC, and currently the BBC receives it all. The BBC collects the fees on behalf of the Government and decides on enforcement and prosecution policies. These policies are based on the Code for Crown Prosecutors issued by the Director of Public Prosecutions and, therefore, take into account public interest considerations such as whether alleged offenders are in genuine financial hardship or otherwise vulnerable. The BBC devolves responsibility for prosecution to a contractor."[128]

151. Lord Justice Auld went on to recommend that, while the use of a television without a licence should remain a criminal offence, it should be dealt with in the first instance by fixed penalty notice "discounted for prompt purchase of a licence and payment of penalty, and subject to the defendant's right to dispute guilt in court." In its response, the Government undertook to give further consideration to this.[129] Fixed penalties would normally feature, if at all, on an enhanced criminal record certificate, issued only in relation to particularly sensitive jobs or positions.

152. We are well aware of concerns that the BBC's agent, TV Licensing, has sometimes deployed inappropriate tactics in attempts to maximise collection of the licence fee. These have included a crude and damaging assumption that every household must be in possession of a TV set, or equivalent apparatus. While payment of the licence fee by households which actually have a TV is a legal obligation, we remind the BBC that the finances it receives from the licence are a privilege. The Corporation should use a less menacing style of advertising campaign.

153. During passage of the Communications Bill, Citizens Advice lobbied unsuccessfully to make the TV licence fee recoverable as a civil matter only.[130] Under these proposals, the licence fee would be recoverable through the small claims process only as a last resort where other payment mechanisms or schedules had failed. More recently, the Institute for Public Policy Research has come to a similar view.[131] We believe non-payment of the television licence should become a civil matter. In the meantime, Lord Justice Auld's recommendation that fixed penalty notices be introduced in respect of TV licence non-payment should be implemented.

103 Back

104   TV Licensing was run by Consignia until 2002 when the contract was won by Capita. The NAO reported on licence collection at this juncture: The BBC: Collecting the television licence fee, HC 821, 2001-02 Back

105   Report of the Committee on Financing the BBC, Cmnd 9824, July 1986 Back

106   The Future Funding of the BBC, DCMS, July 1999 Back

107   Ev 119, Q 177; Ev 111, Q 144; Note that conditional access systems do not necessarily require return paths. Back

108   Ev 24-28; see also Ev 123, Q 198 and Ev 232, Q 588 Back

109   Ev 23 Back

110   Ev 92, Q 50 Back

111   Oral Evidence and Written Evidence, 2003-04, HC 598-iEv 15-21  Back

112   Safeguarding the Future of the European Audiovisual Market, ACT, AER and EPC, March 2004  Back

113   Submission to the public consultation on the future of the BBC: 'Your BBC, Your Say', Public Voice, February 2004  Back

114   Ev 196, Q441 Back

115   Ev 196 Back

116   Ev 194 Back

117   Ev 16 Back

118   Ev 44-46 Back

119   "Thompson tackles Dyke over C4 taunt", Broadcast, 11 April 2002  Back

120   Ev 18 Back

121   Ev 222 Back

122   Ev 52-57 Back

123   Ev 249 Back

124   The Future Funding of the BBC, DCMS, July 1999 p 9 Back

125   Ev 32 Back

126   Third Report, 1999-2000, HC 25 Back

127   From Public Service Broadcasting to Public Service Communications, IPPR, 2004 p 176 Back

128   A Review of the Criminal Courts of England and Wales, The Right Honourable Lord Justice Auld, September 2001  Back

129   Justice for All: Responses to the Auld and Halliday Reports, Home Office, 2002  Back

130   Communications Bill: Briefing for Clauses 169-179, Lords 2nd Reading, Citizens Advice, 2003  Back

131   From Public Service Broadcasting to Public Service Communications, IPPR, 2004 pp 176-177 Back

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Prepared 16 December 2004