The licence fee as a tax
22. Since our last report there has been a significant
change in the position of the licence fee. In January 2006 the
Office of National Statistics re-classified the licence fee as
a tax. Previously, this payment had been classified in the National
Accounts as a service charge. Explaining the change
the Office of National Statistics (ONS) says "in line with
the definition of a tax, the licence fee is a compulsory payment
which is not paid solely for access to BBC services
is required to receive ITV, Channel 4, Channel 5, satellite, cable".
23. We are not convinced by this argument not
least because it has been the case that a licence has been required
to view any television channel in the UK for many decades. Nevertheless
the decision means that from now on the licence fee will be recognised
as a form of hypothecated taxation.
24. Reclassification of the licence fee as a
tax also has the consequence that the BBC is reclassified from
the public non-financial corporations sub-sector to the central
government sector. The
status of the BBC is thus also affected by this decision and it
becomes a central government body. This change also affects the
Welsh broadcaster S4C.
25. When announcing its decision the ONS tried
to offer some reassurance that "These classifications are
solely for the purpose of producing National Accounts and the
statistical products based on them. This has no implication for
the independence of these broadcasters".
26. In spite of this we are concerned about the
consequences of the ONS' decision. The reclassification of the
BBC as a central government body could have serious implications
for its independence. There are various subgroups of public body
that come under the title central government body. The only existing
one that the BBC could conceivable fall into is the category of
a non-departmental public body.
27. The Cabinet Office guidance on non-departmental
public bodies shows that the sponsoring department of such a body
has significant powers over it. For example the sponsoring department
has a role in designating who the body's accounting officer will
be, in approving the form of the annual report and accounts, in
determining audit arrangements, in reviews on the grading and
loading of posts and in setting pay remits.
The reclassification of the licence fee as a tax, and of the
BBC as a central government body, could therefore have significant
implications for the BBC's independence. We urge the Department
of Culture, Media and Sport first to spell out the implications
of these changes and second to explain how the BBC's independence
will be safeguarded in light of them.
28. The licence fee is now classified as a tax
and we note that for the first time the Government have started
to use it as such. They are using it to cover costs that should
be covered by general taxation, in particular the costs of providing
targeted help with digital switchover. As we will discuss in the
next chapter, over 75s are currently given a free television licence
funded from general taxation as part of the Government's social
policy. By proposing to fund targeted help with digital switchover
through the licence fee, the Government have introduced a type
of "top-slicing" for the first time. This is a profound
change to the constitutional position of the BBC. By doing this
the Government can raise taxation without being seen to do so.
29. As long as the licence fee is being recognised
as, and treated as, a tax then our argument that Parliament should
have a chance to properly scrutinise it becomes even stronger.
30. If the Government accept our recommendation
setting out an enhanced role for the NAO then Parliament will
at least have the necessary background information to make an
informed judgement about the licence fee. In addition the Government
must also find a way to enhance parliamentary scrutiny of this
31. Currently Parliament is asked to approve
a statutory instrument when the licence fee changes annually.
The figure in this statutory instrument is in line with the agreement
between the BBC and the DCMS which governs the level of the licence
fee for a finite period of time. For example, in 2000, annual
licence fee increases of RPI plus 1.5 per cent were agreed until
2006. And each year Parliament has been asked to approve a statutory
instrument up rating the fee in line with this formula. The BBC
is now hoping for a similar long-term settlement having bid for
a formula of RPI plus 2.3 per cent between 2007 and 2014
32. Parliament is not given any opportunity
(beyond hearing a Government statement) to scrutinise the licence
fee formula agreed by the BBC and the DCMS. We believe this is
wrong. Parliament should be able to scrutinise the proposed licence
fee agreement which forms the basis upon which it will be asked
to increase the licence fee each year.
33. We recognise the value to the BBC of knowing
what its funding basis will be more than one year ahead. We think
this provides the BBC with an important measure of stability.
However we question whether it is sensible to agree a formula
valid for as long a period as seven years.