BBC licence fee: broadcaster faces funding review - what could replace the current model?

The BBC is facing a review of its funding model, with alternative options being considered to potentially replace the licence fee.

Ministers are expected to formally announce the funding review in the autumn, which will examine the future of the licence fee and look at possible alternatives - such as a subscription service, a broadband levy, and even advertising. Both the advantages and disadvantages of each model will be explored and presented to the government, ahead of the BBC’s royal charter being up for renewal in 2027.

It comes after the BBC’s annual report, which was published last week, revealed that the number of individuals opting to buy a licence fee had fallen by 500,000 to just over 24 million. With this reduction, the broadcaster made £3.74 billion in fees last year, down from £3.80 billion the year before.

BBC sources attributed the decline to growing competition and the cost of living crisis placing pressure on household finances. But a government source told The Times: “The evidence that there is a growing unwillingness to pay is shown by figures each year. The licence fee model is becoming unsustainable.”

The news of the review has broken ahead of the licence fee facing its biggest increase in two decades in April 2024, following a two-year freeze. Currently, licence-holders pay a fee of £159, but this is set to rise to £172 in line with an “annualised” level of inflation.

If the licence fee were to be replaced, it would be the single biggest change to the UK broadcasting in decades. But concern has already been expressed about how complicated creating a new model would be, and though critics of the BBC would perhaps welcome the change, there is no doubt that there would also be severe opposition.

What alternatives have been suggested?

According to The Times, the funding review is expected to examine “all options” for the future of the corporation. These include:

A subscription model

Some Conservative Party backbenchers have suggested turning the BBC into a voluntary subscription service. This would mean people would choose whether or not they pay a monthly or annual fee to watch the broadcaster’s shows, which would include paying for the most popular programmes such as Strictly Come Dancing.

Critics have pointed out however that turning the BBC into a subscription model would move the service online, which assumes every household in the UK has access to high-speed internet - something that is not the case. There is also concern that this type of change would force the BBC to stop airing less commercially attractive content, such as children’s shows.

Meanwhile, others have pointed out that this type of move may actually increase prices. The cost of Netflix’s premium subscription for instance currently sits at £15.99 a month, which works out at nearly £33 more expensive than the annual BBC licence fee.

Broadband levy

An option which was previously floated by the BBC itself was to fund its services through a monthly levy on broadband connections. Essentially, the fee would be linked “directly to an existing common household bill”, such as the internet or electricity, which could simplify the television licence and make it easier to enforce.

This would maintain the BBC as a near-universal service, accessible by all, but would see household bills rise at a time when people are already struggling.

Government grants

One proposal is that the BBC be funded by the government directly - rather than through a flat fee, or being tied to a bill. There is already a precedent for this, in that the Foreign Office helps to fund the BBC World Service.

However, the obvious downside is the threat to the impartiality and independence of BBC News. People have voiced concerns that the broadcaster could become a mouthpiece for ministers if they are closely linked through such funding, something which contradicts the current rules of the service.

Advertising

Even though it is what currently differentiates the BBC from other public service broadcasters such as ITV and Channel 4, some have suggested the BBC follow in these footsteps and be funded by advertising. However, this is already a crowded market - and would likely see significant opposition from the likes of Sky or the aforementioned broadcasters, who would fear a threat to their income.

Commenting on the funding model review, a spokesperson for the Department for Digital, Culture, Media and Sport said: “We remain committed to reviewing the licence fee model ahead of the next charter period to explore the potential for alternative ways to ensure the BBC remains appropriately funded over the long term.”

Meanwhile, Richard Sharp, the former BBC chairman who in April resigned after a report found he breached the governance code for public appointments over his involvement in a loan to Boris Johnson, recently called the licence fee “regressive”. He called for wealthier homes to pay more to access the BBC, something which would potentially be calculated via a household levy based on property value or a tax on broadband bills.