The committee, set up by Chris Smith, Secretary of State for Culture, believes that the existing concession, currently taken up by more than 600,000 elderly people, is outdated.
It is preparing to recommend that the pounds 5 licence - a pounds 96 reduction on the standard fee - which is available to pensioners in sheltered accommodation, be scrapped. If adopted by ministers, the proposal would release an extra pounds 60m for the BBC - enough to pay for more than a week's output and almost as much as the annual contribution to programming made by its commercial activities.
The recommendation, which is expected to be submitted to the Government within the next six weeks, will put ministers in an awkward position because it would be politically difficult to implement.
There is a widespread belief that the cheap licence is an anomaly because pensioners living at home are ineligible. But MPs are inundated with letters from constituents saying it should be extended to them and an attempt to reduce the concession would be fiercely resisted. Labour left-wingers, who last week rebelled against government welfare reforms, would be furious about an attempt to claw back money from a vulnerable section of the population.
However, Gavyn Davies, the economist and close friend of Gordon Brown who chairs the panel, and other members of the committee, believe the current system fails to target money at the most needy. They are convinced that the licence fee is not the right mechanism for helping the poor. "Giving the concession to a wealthy 66-year-old but not a single parent living on income support doesn't seem to make sense," a source close to the committee said. "The social security system is much better and much more adept at attacking the problems of poverty than the licence fee." Insiders stress that existing claimants and blind or disabled people, who receive other concessions, would not be affected.
The Davies panel is also likely to recommend a radical shake-up in the regulation of the BBC to increase the control of its commercial activities. Members believe that the corporation, which is self-regulating at the moment, must be made more transparent so it is clear that licence-fee money is not subsidising its business wing. In addition, proposals are being drawn up for viewers who have digital television to pay more.
The committee was specifically asked by the Government to look at the system of licence-fee concessions. Ministers agree that there are anomalies in the current arrangement, introduced in 1969, which gives pounds 5 licences to elderly people in sheltered accommodation but not those living in their own homes. Registered blind people pay pounds 1.25 less than the full fee.
Although the panel has still not formally reached its conclusions, and it is still possible that it might back away from the idea of scrapping the concession in favour of setting out a range of options, ministers believe that the recommendation is likely to go ahead and are already bracing themselves for the backlash.
Cheap television licences for pensioners could be funded from taxes but that would be fiercely resisted by the Treasury.
Tony Blair hinted recently at Prime Minister's Question Time that it would be too expensive to make cheap licences available to a wider section of the elderly population. Ministers have been told that it would cost pounds 125m to give a half-price rate to people over 70, pounds 83m to those over 75 and pounds 43m to those over 80.Reuse content