iPlayer - small, medium, large. Image: Flickr / Dan TaylorAs both the BBC’s Royal Charter and licence fee settlement expire within the next two years, a Conservative victory in May’s general election was likely not the outcome many at the Beeb would have been hoping for. The Conservative manifesto promised to deliver a “comprehensive review of the BBC Royal Charter, ensuring it delivers value for money for the licence fee payer”. They proposed to keep the licence fee frozen and introduce further top-slicing to help fund the roll-out of superfast broadband, further reducing income to an organisation already halfway through an extensive cost-cutting programme. The appointment of John Whittingdale as Culture Secretary has fuelled concerns that the Conservative government will pursue a tough line on the BBC.

Given his previous role as chair of the Culture, Media and Sport Committee (CMSC), we know a fair amount about Whittingdale’s thoughts on the BBC as the CMSC published a document titled The Future of the BBC in February this year. This report was the first step in examining the role and position of the BBC in the run up to Charter renewal and gives us a good insight into how discussions may unfold over the next 18 months or so. These discussions will need to conclude well before the current Charter expires on 31 December 2016, and will focus on three main and distinct, albeit inter-related, areas:

1. Public service role and functions of the BBC

2. Role of the BBC Trust and related governance issues 

3. Future funding, with special emphasis on the licence fee

Due to its relevance for both Charter renewal and the licence fee settlement - which expires in March 2017 - this article focuses on the third of these. 

The licence fee mechanism

The BBC is, and has been since its inception, largely funded by the licence fee, which must be paid by any home watching live TV on any device (including recordings on a PVR and live streaming online). However it funds much more than just TV, including the BBC’s radio output and online activities. Combined these three activities give the BBC a 96% weekly reach among UK citizens. But users of the BBC website, radio listeners and iPlayer catch-up viewers who don’t also watch television do not pay for the BBC content they consume. As viewing moves away from the linear schedule (and the TV set) and live TV’s role diminishes, critics claim that the licence fee is no longer fit for purpose and in need of updating.

While acknowledging the licence fee remains the best way to fund the BBC in the near term, the CMSC largely agrees with these claims and suggests that the licence fee cannot survive in its current form much into the 2020s. So, what are the facts behind these claims? And what are the alternatives?

First, the facts. Despite the general fanfare around online viewing, actual time spent watching online is far lower than public discourse would suggest. To take the BBC’s iPlayer as one example, while it handled over 2.5 billion TV requests in 2014 it only accounted for 3.6% of total time with BBC TV content. Viewing covered by the licence fee still accounts for the majority of TV consumption, though an increasing amount is taking place outside the linear schedule. 

However, online viewing has led to an increase in the number of homes without a TV set. The BARB Establishment Survey puts this at around 1.6 million TV-less homes, up from 900,000 three years ago. While these homes should pay the licence fee if they are watching live TV on any device, it is our understanding that people associate the licence with TV set ownership rather than live viewing. As the number of homes without a TV set continues to grow, it makes sense that the mechanism by which it is paid changes to accommodate the growing numbers of BBC consumers not paying for their consumption. Interestingly, the last major change to the licence fee took place in 1971 with the abolition of the radio-only licence. At the time TV set penetration was 93% and growing; it seems apt that the next major licence fee change could happen when TV set penetration passes 93% in the other direction.

Now the alternatives. While a number have been mooted, the CMSC favours a household levy, as currently used in Germany, while also highlighting the personal-tax system used in Finland. On the surface the German model is not hugely different from the current licence fee model other than requiring payment from non-TV homes, a step towards capturing the 1.6 million mentioned above. On the other hand the Finnish system is rather different – individuals pay 0.68% of their income tax to YLE, the state broadcaster. Upper and lower limits exist to ensure that low-income groups do not have to pay and total receipts do not get too high.

The CMSC is also keen on the introduction of a subscription fee to capture viewers who solely watch television content via catch-up (such as the iPlayer), or the introduction of some sort of mechanism to ensure that only licence fee payers could access the service, as soon as possible. This would require the Secretary of State to submit updated regulations to Parliament, for approval by negative resolution. Introduction may be fairly simple, but encouraging uptake and enforcement among a generation of viewers who do not associate a TV licence with online video may prove more problematic.

Decriminalisation of non-payment of the licence fee

Currently non-payment of the licence fee in England and Wales is a criminal offence which can incur fines of up to £1,000, though the average fine is £170 (only £24.50 more than the licence fee). Those found guilty do not receive a centrally recorded criminal record, though a magistrates’ court record is maintained. In 2013 over 150,000 people in England and Wales were found guilty in such a court.

Following concerns raised in parliament that the criminal nature of non-payment of the licence fee is too severe, and that it disproportionately affects those on low incomes, the then Secretary of State Sajid Javid announced a review into the TV licence enforcement regime in September 2014. This would consider whether the sanctions were appropriate and whether the regime represented value for money for both licence fee payers and taxpayers. The consultation closed on 1 May and the report setting out the key findings and conclusions will be submitted to government by the end of June.

The main BBC defence is that the prospect of a court appearance acts as an effective deterrent, and without this then the rate of evasion could double. According to the BBC in 2013/14 licence fee evasion was 5.5% of licensable households which amounted to £214 million in lost revenues, while the cost of licence fee collection was £102 million. One further advantage of the criminal regime is that it enables detection and search. Enquiry officers can apply for authorisation to use detection equipment if refused entry onto premises, which is much harder if it is a civil matter. This will not only make it harder to successfully prosecute those offenders, but it may well encourage many households not to apply for the licence fee as they believe they are much less likely to get caught if there is no “detector van”.

The CMSC report, which has been running in parallel with the government’s review, has come out firmly in favour of making non-payment a civil matter pursued through the civil courts, as is the case with parking fines or Council Tax. It also acknowledged that this might lead to higher evasion rates and therefore a reduction in BBC income. The suggestion was that this could be prevented through alternative funding models or conditional access technologies.

Further top-slicing of licence fee revenues

While the Conservative manifesto suggested further top-slicing of the licence fee to pay for rural broadband, the CMSC report found the case for this to be “unconvincing” and recommended that licence fee income be used only for broadcasting or for producing “public service content on television, radio and online.” It even went so far as to say that the government should remedy any 2010 spending commitments, so “those not deemed appropriate for funding through the licence fee are met by other means.” So while the CMSC report did suggest a small proportion of the licence fee should be top-sliced for public service content priorities it opposed monies be used to fund broadband.

Conclusions 

Despite press headlines proclaiming a tough few years for the BBC, we do not believe this to be the case.  Thanks to his extensive knowledge of the broadcasting industry Whittingdale is much more nuanced in his approach to the BBC and is well aware of its importance to the broader UK creative industries.