What would scrapping the licence fee mean for the BBC?

As reports suggest the culture secretary Lisa Nandy is looking to overhaul how the corporation is funded, Sean O’Grady considers whether general taxation could be the way forward

Culture secretary Lisa Nandy is reportedly considering funding the BBC through general taxation (PA)

There are reports, apparently well sourced, that the culture secretary, Lisa Nandy, is considering scrapping the BBC licence fee and instead funding the corporation’s activities from general taxation. If she pressed on with this option it would be the biggest change in the BBC’s business model in its history and would take effect when the current royal charter to broadcast expires at the end of 2027.

In something of a pattern, it’s a sharp change in policy compared to the impression given by the party before the general election and is likely to prove controversial.

What does Nandy want to do?

It’s not that clear but it seems to involve making the BBC into a giant mutual organisation, with its funding coming from general taxation. It seems to be a bit of a hobby horse for Nandy. Back in 2020, long before she took on the culture brief, she suggested a new structure whereby the BBC is “owned and directed by licence fee holders”, so that licence fee payers would have a say in major BBC decisions.

What did Labour say before?

As recently as last July, and in fact just after the general election, Sir Keir Starmer declared: “We are committed in our manifesto to the BBC and to the licensing scheme,” the prime minister said. “There’s going to be some more thought between now and [2027] but we are committed.”

The shadow culture secretary, Thangam Debbonaire, never mentioned mutualisation or paying for the BBC through the Treasury, and the manifesto was silent on the question, merely stating: “We will work constructively with the BBC and our other public service broadcasters so they continue to inform, educate and entertain people, and support the creative economy by commissioning distinctively British content.”

So the government has no popular mandate for such a radical change in a major national institution – a significant weakness in pushing any reforms through. “Giving” the BBC to the British people who already own it would be a bizarre exercise.

Why change?

Since the cost of living crisis, fewer people are paying the licence fee, and many spend more time watching subscription services, such as Netflix. Young people don’t spend much time watching any kind of conventional television at all.

The BBC provides a vast range of TV, streaming, radio, podcasts, local services, iPlayer and archived shows, quality news, nature and entertainment, and websites, all for £169.50 per annum. The BBC has also suffered criticism for its coverage of the EU referendum, usually from Brexiteers. So the argument goes that the funding model must move with the times.

What are the alternatives?

General taxation or a special hypothecated levy would mean the BBC’s funding would have to compete with the NHS, schools, the army, international development and everything else, and would come off worse. The £3.2bn the licence fee raises is equivalent to about half a penny on the basic rate of income tax but it would be linked to ability to pay.

A household levy is another option, very similar to the licence fee. Or there could be levies on internet service providers, some advertising, a partial or whole subscription service, or some permutation of all those various methods. All have drawbacks, and some would effectively end the BBC in its present form. Other good ideas would be for the government to resume its previous funding of the World Service, essentially an arm of the Foreign Office, and for the Treasury to go back to paying for free licences for the over-75s.

Does the BBC matter?

It’s the foundation of much of the creative sector, providing training, skills, facilities, commissioning, innovation and a world-class brand to the UK’s media output. It is still a major national institution people turn to at times of crisis, and still capable of attracting mass audiences and world-beating programming exported everywhere. The unrivalled expertise, breadth and impartiality of its news and current affairs output are protected by its unique funding model, putting vital distance between producers and politicians.

What does the opposition say?

While not as vindictive as they were when Nadine Dorries was culture secretary and Boris Johnson was premier, the Conservatives were committed at the last election to reforming the BBC and abolishing the licence fee.

What will happen?

Nandy could well get her way, if rumours that Starmer is sympathetic to her plans are true. One Whitehall source reportedly said: “People have been saying for more than a decade now that the licence fee is an anachronism. But then they keep going back to it. Keir is prepared to think more radically.”

However unpopular the licence fee is, it is also true that the BBC’s many users – almost everyone in the UK consume some sort of BBC-related content every week – would greatly resent it if their favourite shows, children’s programmes, Wallace and Gromit, web output, local radio station, EastEnders, Match of the Day or the Shipping Forecast suddenly disappeared. Viewers, listeners and web users are all voters, too, after all. As ever, the licence fee may just turn out to be the least bad option.