6 Funding |
191. Probably the most distinctive aspect of the
BBC is the way it is funded through a compulsory television licence,
which some now see as anachronistic given the changes in communications
and media technology and services over the last decade, and changing
audience needs and behaviours. There is now a wide availability
and choice of delivery platforms and mobile receiving devices,
content (linear and non-linear) and services, social media, interactivity
and connectivity. As a result, consumer behaviour is changing,
such as the growing tendency for many now to use multiple devices
at the same time. However, as noted earlier, many people's television
viewing habits have not changed as much as the experts and commentators
had anticipated at the last Charter Review; Lord Burns, for instance,
told us that the PSBs had held on well to their audiences, beyond
expectations, and that even though viewing of their main channels
had declined, they had maintained their overall share of audiences
as these were spread across their new digital and repeat channels.
192. Alternative mechanisms for funding the BBC include
advertising and sponsorship, subscription, and general taxation,
or a mix of some or all of these. Many other countries' public
broadcasters are funded by a combination of licence fee or taxation
and advertising, for example in France, Germany and the Netherlands.
Up to now in the UK, the public service broadcasters, both publicly-owned
(BBC and Channel 4) and privately-owned (ITV and Channel 5), were
granted privileged access to scarce spectrum in return for various
content obligations; this has ensured the provision of free-to-air
broadcasting in the UK.
193. As we have set out above, there remains a greater
expectation on the BBC, given its public funding, to be more willing
to innovate, take a long-term view, and invest in training, which
benefits the whole industry, than there is on its private sector
counterparts. Provided a household has a television set and has
paid for a TV licence, the UK system has ensured the provision
of certain types of welfare-enhancing programming that the market
alone would not provide. However, the Secretary of State thought
that £145 for a licence was for some families a lot of money.
194. As it stands, a television licence is required
for each household where television programmes are watched or
recorded as they are broadcast, irrespective of the signal method
(terrestrial, satellite, cable or online) or the receiving device
(TV, computer, mobile phone, tablet, set top box, DVR or games
console). A licence is not required, however, if a television
is only used to watch DVDs or play video games, or programmes
are watched via catch-up services such as the BBC iPlayer or 4oD
on a computer or connected TV after they have been shown on television.
195. The last settlement of the licence fee in 2010
froze the licence fee at £145.50 for six years until the
end of March 2017. In 2013/14, the fee raised £3.722 billion.
As the BBC stated, the fee represented a cost of 40p a day to
each household paying the licence. There are of course advantages
and disadvantages to the licence fee. We have summarised some
of the points put forward below.
Television licence fee
Simple and straightforward
It is regressiveall pay the same regardless of income or size of household
Secure and more predictable source of income which allows for long-term planning
No choice: it is compulsory for TV homes that do not use BBC services
Meant in theory to maintain the BBC's independence from commercial and political considerations
Homes that watch only catch-up TV online, listen to radio and/or use BBC online get a free ride.
Allows the BBC sufficient income to benefit from economies of scale
Expensive to collect
Universalitywhere BBC's services are available on a free-at-the-point-of-use basis
The charge is associated in people's minds with paying for BBC services
5.5% evasion rate
196. In this chapter we consider the arguments for and against
the continued existence of the licence fee, and its size and structure.
The licence fee remains an area of concern for some members of
the public, who dislike paying for a service they use seldom or
not at all. According to an ICM poll conducted for The Sunday
Telegraph in November 2013, 70 per cent of voters believed
that the licence fee should be abolished or cut.
A more recent poll conducted by ComRes showed that four in 10
people opposed the existing licence fee model and an equal number
The BBC's latest annual report cites an Ipsos Mori poll conducted
in 2014 which found that 53% of the public support the licence
fee as the means of funding the BBC, compared with 26% for advertising
and 17% for subscription.
Accordingly, the BBC claims that support for the licence fee is
higher now than it was in 2004, when 31% backed it, and also higher
than 20 years ago.
197. As can been seen there is no definitive data on what support
exists for the licence fee. Opinion polls conducted by different
bodies pose different questions which deliver varying results
and there is no certainty as to whether support for the licence
fee is overstated by the BBC or understated by others. Given this
is the case, there needs to be robust independent research carried
out to test people's attitude to the licence fee and their willingness
to pay for the provision of BBC services, with a range of propositions
put to them. For instance, Lord Burns told us that the notion
of people not wanting to watch the BBC, despite its enormous reach,
was an option that has to be recognised to a greater extent now
than has been the case before. He also pointed to the challenge
of people beginning to watch television content on other devices,
on the iPlayer and other catch-up services, which he thought would
make the concept of the need for a licence to watch television
more and more cloudy.
198. The BBC explains that alternative methods of funding the
BBC appear to have significant drawbacks. In its opinion, subscription
risks turning the BBC into a commercial operator with an incentive
to provide services that maximise revenues and profits.
It also believes there is evidence that a subscription model would
be likely to reduce its payment base, increasing costs for consumers
who remain and therefore excluding many in society who could not
afford to pay. Similarly, an advertiser-funded BBC could change
its priorities and would have significant consequences for commercial
broadcasters and the revenue available for investment in content.
However, it has been pointed out that the BBC's incentives would
change only if the BBC decided to change them.
199. According to Professor Barnett there was "no convincing
argument in logic, public interest or consumer interest"
for changing the BBC's funding mechanism.
He believed it is now accepted that an advertising-funded BBC
would significantly prejudice other advertising-funded media organisations
and that subscription would immediately undermine the public benefits
200. We received a number of submissions from individuals sent
in a personal capacity in response to our call for evidence. There
was a mixture of people who really valued the BBC and its output
and supported the TV licence and those who thought the fee should
Those opposing the licence fee either did so because they did
not value the BBC or found its reporting unbalanced, were critical
of the way the BBC was run, or disagreed with the licence fee
being compulsory and it being a flat fee which was a bad form
of taxation. Those who disliked the BBC mainly called for it to
be funded via subscription and some also for the BBC to be privatised.
Some who disagreed with the licence fee on fairness grounds believed
the BBC should either be funded through general taxation, advertising,
or subscription, or a mixture of these. In respect of younger
people's views, support for continuation of the licence fee was
favoured by the largest proportion of respondents to our consultation
on the Student Room website but this did not comprise a majority:
41% supported the TV licence, 28% supported advertising, 19.5%
supported subscription and just under 10% supported general taxation.
201. The advantages of funding the BBC directly from taxation
would be that it would be a more progressive system relieving
the burden on poorer homes, and eliminating collection and enforcement
costs of the licence fee. A disadvantage, of course, could be
that the BBC would be constantly subject to the whims of the government
of the day for its income and as such its editorial and operational
independence could be threatened. During the course of our inquiry
we visited the Netherlands to compare the Dutch broadcasting system
with our own. We were warned by most of those whom we met that
since 2001, when the Dutch had moved to financing their public
service broadcasting system mainly through general taxation, successive
Governments had made significant cuts to the budget and further
cuts were planned, despite assurances given that this would not
happen. There has been a similar situation in Australia and Canada.
202. While taking oral evidence, none of our witnesses
recommended that the BBC be funded principally through general
taxation. Greg Dyke explained he had reservations as to whether
the licence fee would continue to be sustainable given the changes
to people's consumption of content. Previously, he suggested a
move to a fairer tax basis, but preferably not one where the BBC
was funded through general taxation and the Treasury. He envisaged
the level of funding raised via a hypothecated tax which would
be protected from political interference. He told us:
It did not seem to me beyond the wit of man that
Parliament could not have had some role in funding [the BBC] in
that way, as opposed to the government of the day, because governments
of the day always fall out with the BBC. It is inevitable.
David Elstein also considered that an income-related
tax would be a better option than the licence fee, although not
the best option for the BBC.
For instance, under an income-related tax there would be no collection
costs, no prosecutions for evasion, it would be socially fairer,
economically fairer, and more efficient.
203. Some have argued that subscription could be
a viable option in the future. Professor Beckett cautioned against
Charter renewal rushing "profound changes such as the abolition
of the licence fee" but thought that the BBC should prepare
the ground for that possibility in the 2020s.
Although it was too early for the BBC to move to subscription
now, in a more mutualised BBC model, where more people had a real
stake in the BBC and where consumption was more personalised,
he believed this might make sense. This could be based on a household
subscription with additional levels to access different content
or services. He noted that channel subscription was already happening
to a degree with BBC Worldwide's channels for non-UK audiences.
204. Mr Elstein was our only principal witness arguing
for a more immediate move to a direct funding mechanism for the
BBC in the shape of voluntary subscription, the adoption of which,
he believes, would have a major impact on the way the BBC operates.
His main objection to the licence fee is its compulsory nature
and the lack of any choice people have about paying for BBC television
services. The changes he foresees would lead to the BBC television
offer becoming more varied, with viewers offered a choice of channels
and packages. This would create an incentive for the BBC to offer
a more "premium" product, such as high-cost drama, sport,
arts and documentaries. Subscribing would be entirely voluntary
but subscribers would need to set up each television set they
owned or purchase a multi-set package.
205. We heard four main objections to the BBC moving
to a subscription model. The first is that it would fundamentally
change the nature of BBC programming, second that it would no
longer be a universal service, third that it might reduce the
overall investment in UK-originated content, and fourth that the
majority of the population could be worse off.
It has also been pointed out that broadcasting funded through
subscription on the whole only caters to pre-existing tastes and
encourages people to pay only for things they like. In addition,
it would not be possible to introduce subscription for radio and
currently over one-sixth of licence fee income went to fund BBC
206. If the BBC were to adopt subscription it is
uncertain how this would affect the volume and variety of programmes
currently shown on BBC TV channels. Rona Fairhead told us that
alternative funding models to the licence fee could potentially
change the nature of the BBC's programming and its approach to
satisfying its public purposes in an unwelcome way.
Mr Elstein envisaged the nature of the BBC changing under subscription,
too. He suggested the BBC could withdraw from its current broad
provision approach and instead produce fewer but higher quality
programmes. He explained:
[My] view is that the BBC sacrifices quality
for quantity too much. Nothing the BBC produces is rubbishthey
are professional peoplebut if you have moderate budgets
and moderate ambitions, you end up with moderate programmes.
if the BBC were released from the obligation to make huge amounts
of programming to meet everybody's needs, it would pick and choose
more and it would winnow some of the quiz shows, daytime shows
or whatever in favour of some more higher-quality shows. It would
also provide more variety of content in order to attract subscribers.
207. Many consider 'universality' a defining characteristic
of public service broadcasting, by which is meant content being
accessible to everyone on all platforms and free at the point
of consumption. Gavyn Davies saw universality as being at the
heart of the BBC. He told us:
The two features that I think have been sustainedand
the case for viewing public service broadcasting as a public goodare
that it should have universal access and that it should be free
at the point of use. Those two things are very difficult to attain
in any mechanism other than a BBC-style funded mechanism.
According to Lord Hall, starting to put BBC services
behind pay-walls would begin diminishing the huge democratic focus
that was universality, which was the essence of what the BBC stood
however, predicted that the position could change in the years
ahead: Richard Hooper CBE, a former Deputy Chairman of Ofcom,
have that theological debate, which
is terribly important, about universality, free at the point of
delivery, which is a central part of the success of public service
broadcasting. My prediction is that up the track, five or 10 years
out, there will be elements of the BBC that will be under some
sort of subscription lock.
208. According to BSkyB, the BBC was in many ways
already under a subscription modela "compulsory subscription".
Professor Barwise thought the licence fee was no more regressive
than subscriptions. Analysis by him suggested that subscription
for the BBC could mean its television services would be more expensive
for low-income households than under the licence fee and would
not offer better value for money, with a consequence that the
majority of the population could end up paying more for less total,
and original, content. Nonetheless, Professor Barwise has said
there could be some value in modelling a range of subscriptions
scenarios but that he remained highly sceptical about the feasibility
of finding a model that led to a better outcome than an inflation-adjusted
209. Gavyn Davies and others have advocated that
the compass of the licence fee, if it is to remain, will need
to be tweaked to account for online, catch-up viewing.
The BBC has said that currently fewer than two per cent of households
watch only catch-up TV. However, the BBC pointed out that the
definition of online viewing could itself start to create perverse
incentives, with a fee payable for some ways of consuming BBC
TV but not others.
James Purnell, Director of Strategy and Digital at the BBC, explained:
The licence fee used to be for wireless. There
used to be a radio one and then a black and white TV licence,
and in 2004 it was amended so that it applied on whatever device
if it was live TV. It could be now amended for that to include
catch-up service as well. We do think there is a slightly odd
incentive that we have at the moment, which is to serve people
if they are watching live but not if they are on catch-up, even
though catch-up is a very important, convenient way of consuming.
210. One possibility for the BBC in the next Charter
period could be to introduce a degree of subscription, where some
core services and channels were publicly funded and others were
on an opt-in basis for an additional fee. For example, a subscription
channel might premier BBC films and programmes or cater for more
niche tastes, such as specialist shows with an arts theme. Lis
Howell, Deputy Head of Journalism, City University, thought a
hybrid system should be considered.
There is no reason why you cannot have a mixed
economy within the BBC where you have some subscription and you
have a core licence fee paying for core services or useful services.
This is what they have in Canada and it works extremely well.
211. A drawback of a system funded partly by the
licence fee and partly by subscriptions is that it would not avoid
the high costs of collection of the fee. A way around this could
be to fund the core service through a more general broadcasting
levy which we consider below. In addition, the BBC suggested that
if it were to go down the road of "top-up services"
for offerings like BBC Four, so that they became commercially
funded, it would be hard to raise the revenue to support such
services through subscriptions without advertising.
A potential advantage of course would be that subscription could
reduce the level of the licence fee (or broadcasting levy).
212. There currently
appears to be no better alternative for funding the BBC in the
near term other than a hypothecated tax or the licence fee. However,
the principle of the licence fee in its current form is becoming
harder and harder to sustain given changes in communications and
media technology and services, and changing audience needs and
behaviours. Given this is the case, we do not see a long-term
future for the licence fee in its current form.
213. We believe
that the forthcoming round of Charter Review should not rush profound
changes such as the abolition of the licence fee model but the
BBC must prepare for the possibility of a change in the 2020s.
We recommend that as a minimum the licence fee must be amended
to cover catch-up television as soon as possible.
214. We conclude
that a degree of subscription could be a possibility in the future
if the BBC moved to a more personalised service and this could
be in accordance with Lord Hall's vision for personalisation of
BBC content consumption. However, careful thought would need to
be given as to what content should remain universally available
and free-to-air, and how this should be funded, protected from
inappropriate influence and delivered to the public.
215. We recommend
that the independent panel and Charter Review process ensure there
is robust comprehensive research, taking into account generational
differences, of people's attitudes towards the licence fee and
their willingness to pay for BBC and public service broadcasting
more widely, and in particular their openness to the idea of subscribing
for certain services.
216. Section 363 of the Communications Act 2003 makes
it a criminal offence for a person to install or use a television
receiver without a television licence. A person guilty of an offence
under this section is liable, on summary conviction, to a fine
not exceeding level 3 on the standard scale, which is in line
with other criminal offences such as using a vehicle untaxed or
without insurance. A common misapprehension is that people are
imprisoned for non-payment of the licence fee. Currently, members
of the public cannot be imprisoned for licence fee evasion, only
for subsequent non-payment of fines imposed for evasion.
217. We received several submissions complaining
about the way TV Licensing collects the licence fee, especially
in terms of the nuisance they can cause householders who do not
watch live television and who do not hold a licence. The majority
of the administration of TV Licensing is contracted to Capita
Business Services Ltd. In the course of its collection, TV Licensing
routinely writes to all addresses where there is no record of
a licence or where the current licensing requirements are unknown.
In 2012/13, TV Licensing sent approximately 56 million items of
mail and 7.3 million electronic communications.
Approximately 1.3 million letters were sent to addresses where
the occupier had informed TV Licensing that they did not require
a TV licence.
218. In 2012, TV Licensing proceeded against approximately
182,000 people in magistrates' courts.
Of those prosecuted in 2012, about 155,000 people were convicted
and fined for non-payment of the licence fee.
In the same year, the number imprisoned for non-payment of the
fine was 51. The BBC has confirmed to us that unlicensed viewers
have been prosecuted who have watched live TV programmes on devices
other than televisions but has not disclosed the number of such
prosecutions or whether any have resulted in imprisonment for
non-payment of a fine.
Whilst licence fee evasion cases make up around 10% of magistrate
court criminal cases, the BBC has stated that the vast majority
are heard uncontested and in bulk and that the average presentation
time is only three minutes and 13 seconds.
Therefore, these cases account for a significantly smaller proportion
of court time than their numbers might suggest.
219. On 4 March 2014, Andrew Bridgen MP tabled an
amendment to the Deregulation Bill which would have had the effect
of amending the Communications Act to decriminalise non-payment
of the licence fee, making persons installing or using a TV without
a licence liable to a civil penalty instead. By mid-March the
amendment had been signed by over 150 Members of the House of
Commons. Although his proposed amendment did not provide detail
on how a civil penalty for the licence fee would work, based on
analogous offences, it would be likely that the BBC or its agents
would issue a penalty notice to households believed to be evading
the licence fee and, if the penalty was not paid, apply to the
County Court for enforcement. Any County Court judgements granted
would then be recorded against the individuals concerned and attempts
could be made to recover unpaid sums. This is similar to the way
local authorities deal with non-payment of Council Tax and in
the case of parking enforcement, through penalty charge notices.
220. The BBC has said that a system of civil penalties
would be likely to lead to a material increase in evasion and
collection costs for the BBC. The BBC also say that as it is not
presently possible to turn off people's ability to use BBC services
if they do not pay the licence fee, they are more vulnerable to
payment-evasion than pay-TV broadcasters who can disconnect non-payers,
or some utility companies who can install pre-payment meters.
The BBC believe that the criminal deterrent of non-payment has
kept the estimated evasion rate to around 5.5%. Research conducted
for TV Licensing has indicated that 93% of people considered the
prospect of a court appearance was an effective deterrent to non-payment
of the licence fee.
221. According to the BBC, if decriminalisation led
to a doubling of the evasion rate to around 10%, the Corporation
would lose an estimated £200 million per annum, an amount
equivalent to the combined budgets of BBC Four and its two children's
channels. The BBC has also suggested that enforcement would be
much more difficult under a civil penalties system, as it would
be harder to justify the use of detection equipmentrarely
used for offences attracting civil penalties. James Purnell told
us that since Japan's TV licence system was decriminalised about
25 per cent of people did not pay. He explained:
Japan, for example, a very law-abiding country,
has a system that is not voluntary but is decriminalised in effect
and that is a system in which only 75% of people pay. Clearly,
if you move to that, that would mean a big hike in terms of the
licence fee for people who were paying or a massive reduction
in BBC services.
Nonetheless, it has been reported that one reason
for the number of Japanese households not willing to pay the licence
fee was the spate of high profile scandals over the last decade
at NHK, Japan's national public service broadcaster.
Others have stopped paying because they have been angered by the
revelation that so many were not contributing.
222. Following the tabling of Mr Bridgen's original
amendment, the BBC sent a note to all Members of the House, in
which it said that the licence fee enforcement system should be
considered further as part of the review of the BBC's Charter
and funding, and it proposed a working group be set up with the
BBC, DCMS and Ministry of Justice to do this. Mr Bridgen accepted
that time should be allowed for such a review to take place. To
allow this to happen, he and the Solicitor General tabled revised
amendments calling for such a review of the appropriate sanctions
for non-payment of TV licences. The Commons Bill Committee voted
in favour of their amendments.
223. In line with the Bill Committee's wishes, last
October the Secretary of State announced the terms of the Government's
review of TV licence enforcement.
The review team has been asked to report by the end of June
2015, setting out an assessment of the current and proposed enforcement
regimes, and making recommendations for Government.
224. We note
the Government's review, which is looking at the possibility of
the decriminalisation of non-payment of the licence fee. Our view
is that criminal penalties for the non-payment of the licence
fee and the way enforcement is carried out is anachronistic and
out of proportion with the responses to non-payment for other
services. We believe there is a strong case for making non-payment
a civil matter pursued through the civil courts in the same way
as non-payment of Council Tax, parking fines and utility bills.
We also acknowledge the possibility, based on the evidence presented
and international experience, that decriminalisation could lead
to an increase in evasion and potentially, therefore, a reduction
in the BBC's income. Below, we discuss two possible ways this
could be addressed. In paragraphs 228 to 233 we discuss Germany's
recent transition from an appliance based "licence fee"
to a household broadcasting levy. This has made household investigations
unnecessary. And in paragraphs 237 to 244 we discuss the potential
for introducing conditional access technologies, which would obviate
the need for criminal penalties.
Alternative models for funding
225. During the course of inquiry, we considered
how other countries fund their public broadcasters. Below is a
table setting out a selection of countries and their method of
funding and the domestic level of their licence fee or equivalent.
Two systems that stood out are the Finnish and German systems.
Both have recently changed.
Source: FCO Posts
226. Since the beginning of 2013, Finland's national
public service broadcasting company (YLE) has been funded by a
public broadcasting tax (also called YLE). This replaced Finland's
television licence. The YLE is a personal tax that must be paid
by individuals regardless of whether they own television sets
or whether or not they watch TV. Consequently, there can be several
eligible YLE taxpayers in the same household. However, all under
18s are exempt. The present rate of the YLE for individuals is
0.68% of their income but with an upper maximum contribution of
143. If a person's contribution is calculated at below 51
then that individual does not have to pay. Organisations and foundations
are also expected to pay the tax.
227. The progressive nature of the YLE tax and the
lower limit (51) mean that all individuals on low incomes
(e.g. the unemployed) pay a smaller amount or no contribution
at all: for example, students with no or little income apart from
study grants are exempt. According to official estimates, most
people were expected to pay less under the new individual tax
than what they would have paid under the licence fee system. The
main losers have been those on reasonable incomes who do not own
a TV set. Given that the system was only introduced in 2013, it
is probably too early to judge its success.
228. During our visit to Germany we considered the
introduction of Germany's new household broadcasting levy (called
the "Rundfunkbeitrag"). The German system of financing
public sector broadcasting was reformed as of January 2013. In
place of the previous system where the fee was based on the number
and types of broadcasting receiving devices (TVs, radio sets,
computers) in a property, there is now a universal flat fee per
household and so it is now immaterial how many adults live in
the household or how many receiving devices they own or use. All
households are subject to the charge regardless of television
usage. Recipients of certain welfare benefits (such as unemployment
benefit) can apply for exemption from the fee, as can students
living away from home.
229. Germany's change to the fee regime was prompted,
in part, by the realisation that it was increasingly difficultand
impracticalto distinguish between device categories in
a multimedia environment. Another factor, we were told, was the
previous inspection regime had been heavily criticised and expensive
to administer. The winners under the new German system are flat-sharers,
cohabiting couples and young adults with an independent income
who are still living with their parents, adults who have hitherto
been liable to pay individual licences. An advantage of the new
system is that there is no longer any need for the extensive investigatory
measures used by the revenue collection service to determine people's
living circumstances or to check the number of receiving devices
in use in a property. Since it is a blanket fee charged to all
households, the principal losers are households with no equipment
of any sort capable of receiving broadcasts. Making everybody
pay in effect has turned the old 'fee' into a 'tax'. However,
when Germany introduced the new system, it discovered that the
number of households previously evading the old licence fee was
significantly higher than thought. This has led to the new broadcasting
levy being set at a lower level than the old licence fee while
maintaining funding levels for the public service broadcasters.
230. It is arguable that a broadcasting charge levied
on all households in the UK to fund principally the BBC could
be justified on the basis that the BBC reaches over 96% of the
population. In addition, industry statistics from the Broadcasters
Audience Research Board (BARB) show that around 96% of homes have
a television set.
However, the BARB figure does not capture TV viewing on other
devices such as laptops, tablets or mobile phones. Nonetheless,
introducing a broadcasting levy on all households in the UK would
be likely to be very unpopular for those who do not currently
watch live television, but it would mean that those people currently
consuming BBC radio and online services for free would now pay
for these services. It would also obviate the need for, and cost
of, TV Licensing's investigatory work in catching evaders of the
231. Some may see the introduction of a broadcasting
levy in the UK giving a stronger justification that a proportion
of its revenue be made available on a competitive basis to support
public service content by others and more plurality in PSB provision.
In addition, a broadcasting levy would also be more in line with
media convergence, i.e. people watching television content on
a variety of devices, meaning it was no longer a "television
232. The German
model of a broadcasting levy on all households is our preferred
alternative to the TV licence. Such a levy on all households would
obviate the need to identify evaders and would be a fairer way
of ensuring those people who use only BBC radio and online services
contribute to their costs. A broadcasting levy which applied to
all households regardless of whether or not householders watched
live television would help support the use of a small proportion
of the revenue raised for funding public service content and services
by others, enhancing plurality.
233. We recommend
that the independent panel and Charter Review process should investigate
the advantages and disadvantages of a household broadcasting levy
as an alternative to the licence fee and on how the broadcasting
levy could be made more affordable for low income groups in the
UK. We also believe that the new Finnish system, of a hypothecated
tax specifically for broadcasting, based on an individual's income,
although still its infancy, would still be worth consideration
during Charter Review.
234. A criticism of the licence fee system is the
high cost of its collection. Last year, it cost £102 million
to collect the fee.
Nonetheless, in recent years the BBC has been successful in reducing
this cost. Since the BBC has taken over collection from the Home
Office, the collection costs have fallen from 6% to under 3% and
the level of evasion has fallen from around 10% to just around
5%. While the
licence fee annual collection cost appears extremely high, BSkyB
told us that £100 million was nothing compared to what the
BBC would need to spend on marketing in order to retain subscribers.
235. In France, the television licence is collected
with the French equivalent of their council tax (taxe d'habitation).
One advantage of collecting a licence fee with another tax or
through a utility bill is that the collection costs can be shared
with another body and reduced. If the licence fee were collected
through the Council Tax or with a utility bill, non-payment could
be pursued through the civil courts. Additionally, to a limited
extent, if it were collected via the Council Tax there could be
some way of applying simple means tests for certain demographic
groups, for example pensioners in receipt of the Pensioner Credit,
for whom concessions might be considered desirable. At present,
all pensioners over 75 years of age receive a free TV licence,
which costs £600 million a year, whatever their own income
or the household's income.
Arguably, this is a badly targeted benefit and the money could
be better used to support those for whom 40 pence per day represented
a genuine burden. As this cost is met through the Department for
Work and Pensions, and not through the BBC or the DCMS, it is
not a matter that falls within our remit.
236. We recommend
that the independent panel and Charter Review look at what options
might be available for sharing collection costs of the licence
fee or a broadcasting levy with local authorities or utility providers.
237. Currently, access to the BBC's television services
is not denied to anyone in the UK. Viewers can receive the BBC's
television services by terrestrial, cable and satellite distribution
as well as via fixed and mobile broadband. There is no technical
obstacle preventing non-licence payers receiving the BBC's channels
despite the illegality of doing so. One of the arguments made
for maintaining criminal penalties for non-payment of the licence
fee is that, unlike suppliers of other services such as utilities
and pay TV, it is not possible to cut-off non-payers and that
lesser penalties could tempt many more not to pay, maintaining
their ability to receive the services illegally. Some form of
"conditional access" could allow non-payers of the licence
fee to be cut off from television, as well as the technical capability
for offering different levels of BBC service, on an opt-in or
opt-out basis, in future.
238. Estimates have suggested that about 35 million
TV sets in the UK are not connected to a device with conditional
If encryption were introduced, the users of those TV sets would
have to be equipped with an add-on device in order to access BBC
television services or upgrade to televisions with that capability
built in. Industry experts have suggested that each device would
cost about £15, which would mean an overall cost of about
£500 million. It is likely that it would take several years
to roll these devices out. The Government would need to decide
whether the basis of such a conditional access system was for
all TV services, for example for BBC, ITV and Sky, or whether
such a conditional system would be just put in place for receiving
BBC television and BBC on-demand services. The BBC would also
need to consider blocking viewers on the internet, such as those
who watch the iPlayer.
239. Already 60 per cent of homes receive BBC television
on at least one household set through a cable or satellite platform
which can control access to channel packages and premium channels.
Restricting access to BBC television services on the internet
to authorised users (e.g. licence fee payers) does not require
any additional technology; online services can limit access to
only registered users, even for free services, or subscribers
240. The longer timescales and significant costs
that would be involved in equipping all UK homes with technology
capable of allowing the opt-in or opt-out of receiving the BBC's
television services in whole or in part, or some element of payment,
are in any event a result of the BBC's own earlier strategy to
deter alternatives to the licence fee. As reported nearly a decade
ago, Greg Dyke admitted that part of the rationale behind the
launch of the digital terrestrial service Freeview when he was
Director General was to introduce set-top boxes incapable of turning
the BBC's channels into 'pay as you go' services at a later date.
241. Lord Burns has suggested that the BBC should
make iPlayer available on a conditional access basis for licence
fee payers so that only people who were part of a household who
could prove they had paid the fee could watch programmes via catch-up.
Alternatively, Lord Burns indicated that the iPlayer could be
accessible to those who paid a subscription charge if they did
not already have a TV licence.
242. Introducing conditional access for BBC services,
however, would need to be considered in conjunction with arguments
for the maintenance of universal access to BBC services, even
for licence fee evaders. Professor Barwise has identified that
if the Government were to move to introducing a conditional access
system, the cost could be much reduced by mandating it for all
new television sets and devices so that it was spread over the
There could then be a judgment to make about the trade-off between
the speed and cost of the transition to universal conditional
access or to the point where the penetration was high enough to
justify stopping unencrypted BBC-TV broadcasts.
243. We believe
that conditional access offers opportunities to ensure that only
those households who have paid a licence fee or its equivalent
would be able to access BBC or television services. Introducing
a means of authorising access to television services would solve
the criminalisation issue associated with non-payment of the television
licence. However, as there would be significant costs attached
with the widespread introduction of conditional access technology,
the Government would need to decide over what timescale it should
244. The independent
panel and Charter Review should consider the desirability and
feasibility of the BBC using conditional access to ensure its
television services are available only to licence fee payers and
authorised users in future. We recommend that Ofcom's advice is
sought on current availability of conditional access technology
and devices, market adoption trends and potential timescale for
widespread adoption. Ofcom could also advise on the implications
of requiring manufacturers to include conditional access technology
in all receiving devices from a future date.
245. We recommend
the BBC should look at the practicality of introducing controls
for authorising access to the iPlayer as soon as is possible,
as has been suggested by Lord Burns.
Setting the level of PSB funding
246. Earlier on in this Parliament we reported on
the unsatisfactory nature of the 2010 licence fee settlement.
The BBC appeared to be put under pressure by the Government to
take on new funding commitments for local TV, S4C, rural broadband,
BBC Monitoring and the World Service, with no increase in funding,
and the BBC accepted these new obligations. What was more concerning
was that the settlement was agreed behind closed doors in just
a few days and without any consultation with licence fee payers
247. We were surprised in 2010 that the BBC Trust
did not hold its ground and insist on more time and some consultation
about the settlement instead of agreeing to the Government's demands,
even when threatened with a lower licence fee if they did not
accede then. The duties set out in the Charter are unequivocal.
In exercising all its functions the Trust must act in the public
interest and, in particular, it must:
a) represent the interests of licence fee payers;
b) ensure that the independence of the BBC is
c) carefully and appropriately assess the views
of licence fee payers;
d) exercise rigorous stewardship of public money;
e) have regard to the competitive impact of the
BBC's activities on the wider market; and
f) ensure that the BBC observes high standards
of openness and transparency.
248. It is unarguable that the BBC Trust did not
carefully and appropriately assess licence fee payers' views or
observe high standards of openness and transparency in this instance.
As a result, the Trust's representation of licence fee payers'
interests, its exercise of rigorous stewardship of public money,
and its independence, are all subject to question. Had the Government
attempted to force through a lower licence fee in short order,
in the face of the Trust exercising its fundamental Charter duties,
we believe it would have faced adverse public reaction, especially
if the Trust resigned, or threatened to resign, in protest.
249. Moreover, the Government could not have unilaterally
required the BBC to take on new responsibilities and funding commitments,
the cost of which, according to the BBC, built up to £500
million a year (13 per cent of the licence fee) by April 2014
and, in conjunction with a frozen licence fee, will have reduced
the BBC's budget by 26% in real terms by the end of the licence
fee period. These
new commitments required the BBC's agreement and amendment of
the Framework Agreement between the BBC and Secretary of State,
a foundation document in which the parties "affirm their
commitment to the independence of the BBC" and in which the
BBC has "voluntarily assumed obligations which restrict,
to some extent, its future freedom of action".
250. As it turned out, the BBC would not have been
worse off if the Government had in fact lowered the licence fee
by 10% since this would have had less financial impact than taking
on new obligations accounting for 13% of a frozen licence fee.
251. Determining the level of PSB funding is handled
differently in other countries. For instance, in Denmark up until
10 years ago, the level of the licence fee had been agreed annually:
however, it is now set over a slightly longer period in line with
objectives set for PSB by the Danish Parliament. A new political
agreement on broadcasting was agreed last year for 2015 to 2018,
where new provisions were approved for online and catch-up services
for Danish Radio, its national broadcaster.
252. Whilst in Germany we learnt that the individual
State governments, i.e. the Länder, were responsible for
defining the function and purpose of PSB. Despite this, in 1994,
the German Constitutional Court ruled that the evaluation of the
licence fee should be a technical task and not a political one.
Consequently, the level of the licence fee has been determined
by the State governments and parliaments on the basis of recommendations
of the KEF (the Commission for the Review and Determination of
the Funding Requirements of Broadcasting Corporations). The KEF
is an independent panel of experts which periodically examines
PSB requirements and recommends an appropriate level of funding.
The 16 Länder parliaments then set the level of the levy
accordingly, usually for a period of five years.
253. In the UK towards the end of 2016 there will
have to be a decision on the level of the next TV licence (the
present six-year settlement ends in March 2017) and for how long
the next settlement should be. At present, Parliament is only
involved in the process in so far as it has an opportunity to
reject the regulations which set the actual licence fee each year.
A debate in the House of Commons last took place on a regulation
at the instigation of the then Opposition in 2009.
254. As things stand, several witnesses considered
that the current licence fee was pretty much at the upper limits
of what people could afford. Former BBC Chairman, Lord Grade thought
that the BBC ought to face a challenge when the level of its future
licence is set but that it should be a decision for the Government
of the day without a vote in Parliament. Lord Grade explained:
I absolutely believe in the licence fee. It is
pretty much at the upper limits of what is affordable. I would
dearly like to see, in the next settlement, [the licence] set
at a level with a programme of reduction of the BBC's costs through
structural changenot just through salami-slicing more and
more redundanciesand still trying to cover the same amount
but whatever changes are made, whatever system
processes are, we must never lose the joy of the present system,
which is that there is never a vote in Parliament on the BBC's
level of funding or on its charter. There are debates, quite correctly,
and there is a searching inquirythis is the beginning of
that processbut there is never a vote.
Conversely, Professor Barnett believed the BBC should
have a more secure settlement next time:
If the BBC is to continue as a significant national
cultural and creative force into the 2020s, we cannot afford to
inflict another round of real-terms cuts. It is therefore imperative
that, post 2016, inflation-proofing for the licence fee is restored.
This will provide the BBC with maximum stability in terms of its
programme investment decisions, and ensure that no core services
will need to be closed.
Greg Dyke held a similar view:
I would not have thought it possible to increase
the licence fee in the last round, personally. I think it would
have been extremely difficult, given what was happening to the
rest of the public sector, to do that. But at some point, obviously,
we will hopefully emerge from this period of public sector squeeze
and we will have to ask ourselves again how to fund the BBC so
that it can retain this universality that we are arguing is crucial
believe that the current means of setting the licence fee is unsatisfactory.
The 2010 settlement demonstrated that the BBC's independence can
be compromised by negotiations with the government of the day
that lack transparency and public consultation. Irrespective of
any Government pressure, the BBC Trust breached its Charter duties
and often-stated commitments to reflect the interests of licence
fee payers first and foremost, in agreeing the settlement in the
manner it did.
256. No future
licence fee negotiations must be conducted in the way of the 2010
settlement: the process must be open and transparent, licence
fee payers must be consulted and Parliament should have an opportunity
to debate the level of funding being set and any significant changes
to funding responsibilities. We recommend that the independent
panel and Charter Review process consider the appropriate length
of licence fee settlements and the period in which they should
be reviewed and changes made.
Sharing the licence fee
257. The use of the licence fee to fund services
and activities other than the BBC's is a contentious topic. Dame
Tessa Jowell MP told us that the licence fee was for the BBC and
was critical of the way the present Government had used it for
make the point that there is a
popular misunderstanding that the licence fee is the same as money
raised through taxation. It is not. It is a sum paid every year
by licence fee payers for the BBC. It is not available to the
Government of the day to spend at will and it should be made much
harder, in my view, for the Government to raid the licence fee
for its own purposes.
The position of using the licence fee for purposes
other than the BBC, however, is not new. Previously, £600
million of the licence fee revenue was earmarked to support digital
switchover, and the BBC also provided substantial licence fee
funding to S4C for its use in programme production before the
258. A predecessor Committee discussed the question
of whether the licence fee was the preserve of the BBC.
It noted the then Government's position that the television licence
fee is not the "BBC" licence fee and that in principle
the BBC has no exclusive right to it, with the device levy paid
into the Consolidated Fund like any other tax, for the government
of the day to determine how it is used. The Committee further
noted historical information regarding retention of a proportion
of the licence fee by the Treasury as an excise duty. It agreed
that the licence fee is not of right the "BBC" licence
fee but said it was important that there is clarity about the
pros and cons of the licence fee being exclusively used for the
BBC or shared with others. As noted earlier, the Framework Agreement
also clearly states that the Secretary of State shall pay to the
BBC "sums equal to the whole of the net licence fee revenue
or such lesser sums as the Secretary of State may, with the consent
of the Treasury, determine".
259. The 2010 settlement involved a significant extension
of the use of licence fee revenue beyond the BBC than has happened
before. Consequently, the debate has been on the appropriateness
and legitimacy of funding these new purposes and on how broadcasting-related
they are. Some are more directly BBC broadcasting related (World
Service) or related to third-party broadcasters (S4C and local
TV). In the case of BBC Monitoring, its work involves reviewing
news and information from media sources around the world. The
service was set up in 1939 to assess the use being made of radio
by the Axis powers during WWII; since then, the closeness of Monitoring's
work to intelligence gathering meant that it was funded by grant-in-aid
via the Cabinet Office. However, the information it collects is
now provided to the BBC and a range of others including commercial
media organisations, foreign governments, NGOs and universities,
as well as the UK government. Similarly, BBC World Service until
2014 was funded through the Foreign Office given that its language
services, although independent of Government, were widely seen
to benefit UK diplomacy rather than provide a direct benefit to
licence fee payers.
260. A less direct linkage to broadcasting is the
Government's decision to fund the rollout of the rural broadband
infrastructure via the licence fee. Arguably there is a tangential
link in that improving rural communities' digital provision will
allow people better connections to online media services but it
seems to us this expenditure would more appropriately be met through
general taxation. However, as part of the 2010 licence fee settlement,
£150 million per year is being taken from licence fee revenue
to support the rural broadband programme over four years.
261. In the run-up to the 2006 Charter Review, Ofcom
had suggested that £300 million of new funding should be
used to establish a "public service publisher" providing
additional innovation and plurality in public service content
provision. Ofcom had proposed a single not-for-profit creative
organisation that would have been responsible for the whole process
of commissioning, overseeing and distributing public service content
from end to end.
262. At the same time, Lord Burns, as independent
adviser to the Secretary of State on Charter Review, recommended
that wider distribution of licence fee funds, via competition,
would help sustain plurality in public service content. Lord Burns
envisaged the creation of an independent Public Service Broadcasting
Commission, which would be able to award part of the licence fee
revenue for public service provision by others than the BBC. Earlier
in 2004, a panel chaired by David Elstein also advocated a similar
entity, which would be independent of government, and would distribute
Under the latter proposal the BBC would have had to bid for all
its public funding. Evidently, none of these proposals came to
263. ITV told us that it was inevitable that a debate
about the future of the BBC would include a discussion about "top-slicing"
the licence fee for other providers or users, with familiar arguments
about the potential benefits and downsides. They suggested that
the "increasingly challenging" market economics of news
reflected in the declining newsgathering resources of the press
both regionally and nationally and the power of the BBC's editorial
voice in a fully digital environment could mean this particular
debate was now more pertinent and important than ever before.
264. Conversely, the Voice of the Listener and Viewer
(VLV) were against distribution of the licence fee for public
content beyond the BBC. They saw this as undermining the clarity
of the direct relationship between the licence fee and the BBC.
Moreover, VLV did not support the 2010 licence fee settlement
because it effectively diverted money from BBC programme-making
Professor Barnett believed that it was vital that the "top-slicing",
introduced as part of the 2010 settlement, was removed.
He thought there was a real danger of licence fee revenue
being treated as a communal source of public income from which
Government departments could bid for any remotely relevant under-funded
or unfunded scheme. Accordingly, he called for the money made
available for local TV, for broadband rollout and for S4C to revert
to departmental funding should a future Government wish to preserve
265. Last year, Dr Colette Bowe, the then Chairman
of Ofcom, said she thought some BBC licence fee funding should
be "contestable", with other media companies allowed
to bid to make public service broadcasting programming:
"I am an economist. There is a lot to be
said for contestable funding on competition grounds ... The counter
argument is that once you start stripping away great chunks of
funding you weaken the stability [of the BBC],"
"I have got sympathy with the idea that
some more of the funding currently available for public service
broadcasting should be contestable. Because on the whole I am
on the side of the people in the sector who believe that what
we need is even more competition and dynamism and innovation than
we have got."
266. While some believe that sharing the licence
fee further would muddy the accountability of what the licence
fee delivers, a degree of contestability of part of its revenue
could keep the BBC alive to the privilege of its receipt. Lord
Grade proposed that Channel 4 could be funded through the licence
fee and be put in head-to-head competition with the BBC if Channel
4's future commercial survival was under threat.
Contestability could also be a means of ensuring plurality of
supply in key PSB genres such as children's programming and regional
news. Nonetheless, there is a risk that some funding could transfer
under these circumstances from licence fee payers to the benefit
of shareholders of commercial companies. However, this would not
be the case for non-private sector providers.
there is nothing that states the licence fee revenue is the sole
preserve of the BBC, we find the case for the licence fee as a
source of funding for rural broadband and BBC Monitoring unconvincing.
268. It was
wholly wrong that 2010 licence fee settlement, which permitted
the licence fee revenue to be used for new purposes, was not subject
to any public or parliamentary consultation. We recommend that
income from the licence fee (or the broadcasting levy) be used
only for the purpose of broadcasting or the production of public
service content on television, radio and online. As a result,
we believe that the Government must be prepared to remedy any
existing spending commitments agreed in 2010 so that those not
deemed appropriate for funding through the licence fee are met
by other means such as general taxation.
269. The BBC
should be the principal recipient of the licence fee (or broadcasting
levy) but a small proportion should be made available for other
public service content priorities such as supporting local and
regional journalism, and children's broadcasting. We recommend
that the independent panel and Charter Review consider how such
contestable funds might operate and what types of public service
areas they might support.
263 Q280 Back
In 2013/14, licence fee collection costs were £102 million Back
BBC-Television Licence Fee Trust Statement for the Year Ending
31 March 2014, 21 July 2014 Back
BBC Annual Report and Accounts 2013/14, BBC Executive
section, page 5 Back
Q307 (Lord Burns) Back
BBC (FBB0097), para 51 Back
"The 40 lies the BBC tells about subscription", OurBeeB,
Open Democracy website, by David Elstein, 30 July 2014 Back
Professor Barnett (FBB0078), para 23 Back
For example see-Proponents: Rory Hegarty (FBB0008); Steven Norris-Tari
(FBB0143); Peter Weitzel (FBB0058); Miriam Hall (FBB0064); Frances
Christian Balfour (FBB0081). Opponents: Lee Taylor (FBB0004);
Kenneth MacLean (FBB0019); Alan Morton (FBB0023); Andrew Reid
(FBB0039); Mr. C. D. Lee-Koo (FBB0049). Back
See Annex D. Back
Q242 (Professor Barnett) Back
Professor Beckett (FBB0022), para 1.1 Back
David Elstein (FBB0104) Back
See: Professor Barwise (FBB0128) Back
Q238 (Professor Barnett) Back
Q77 (Gavyn Davies) Back
Q603 (Lord Hall) Back
Exchange of correspondence between Professors Barwise/Picard
and David Elstein, dated 3 May 2014 Back
BBC (FBB0097) Back
Q232 (Lis Howell) Back
Figures taken from the TV Licensing website Back
HL Debates, 29 August 2013, WA383 Back
68% of those prosecuted were female Back
BBC Executive's responses to follow-up questions to 22 October 2013 oral evidence session,
23 December 2013 Back
BBC Note to MPs-Deregulation Bill amendment to change penalties
for non-payment of the licence fee, March 2014. Analysis by TV
Licensing. The BBC noted that this equated to about 0.3% of court
According to BBC Note to MPs-Source: TV licensing Brand and Communications
"Japan's public broadcaster searches for a model amid scandals",
Taipei Times, June 2006 Back
HC Deb, 21 October 2014, col. 78WS Back
A selection of FCO Embassies and High Commissions were asked
to provide information on their respective countries Back
Students living away from the parental home in recent of a student
loan or vocational training grant qualify for exemption from the
The Viewing Report, BARB, November 2013 Back
BBC Annual Report and Accounts 2013/14 Back
Department for Work and Pensions Annual Report and Accounts
2013-14, page 79 Back
'Licence fee shake-up 'will cost BBC £500m', The Independent,
30 March 2014 Back
Dyke 'promoted Freeview to save licence fee', The Guardian,
17 September 2004 Back
BBC should encrypt iPlayer for licence fee payers, says Channel 4 boss,
The Guardian, 10 July 2014 Back
Professors Barwise and Picard's response to David Elstein regarding
a report entitled What if there were no BBC Television?,
dated 3 May 2014 Back
Fourth Report of Session 2010-12, BBC Licence Fee Settlement
and Annual Report, HC454 Back
Cm 6925, para 23 Back
Driving efficiency at the BBC, To deliver quality content
for the licence fee payer, BBC, November 2004 Back
Framework Agreement, schedule 4 Back
HC Debates, 20 May 2009, col 1575 Back
Professor Barnett (FBB0078), para 24 Back
BBC Annual Report 2008-09, Fifth Report of Session 2009-10,
HC 515 (discussion in paras 9-19) Back
Cm 6872, schedule 75(1) Back
A new approach to public service content in the digital media
age: the potential role of the Public Service Publisher, Ofcom,
24 January 2007 Back
Beyond the Charter: The BBC after 2006, The Broadcasting
Policy Group, February 2004, Chapter 1, paras 11 to 19 Back
ITV plc (FBB0066), para 42 Back
Voice of the Listener & Viewer (FBB0030), para 13 Back
Professor Barnett (FBB0078), para 25 Back
Ofcom boss: 'BBC licence fee should be shared with other broadcasters',
The Guardian, 14 February 2014 Back
"Wither the BBC", Is the BBC in Crisis?, published
by Abramis academic publishing, 2014, page 4 Back