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On 16 December 2022, the House of Lords is due to debate a motion from Baroness Stowell of Beeston (Conservative) to take note of the report from the House of Lords Communications and Digital Committee ‘Licence to change: BBC future funding’.

1. Background

The BBC was first formed as the British Broadcasting Company by a group of wireless manufacturers on 18 October 1922. The British Broadcasting Corporation was established by a royal charter in January 1927. The BBC describes itself as “the world’s leading public service broadcaster”. Its services include:

  • a range of television services, including: national and regional programming; channels for children and young people; BBC News; and BBC Parliament
  • 10 UK-wide radio services, two national radio services each in Scotland, Wales and Northern Ireland and 39 local radio stations across England and the Channel Islands
  • a range of digital services, such as the on-demand catch-up service BBC iPlayer and the BBC News website
  • BBC World Service television, radio and online services in more than 40 languages

The royal charter is the constitutional basis for the BBC. It sets out the BBC’s mission and public purposes amongst other governance and regulatory arrangements such as the composition of the BBC Board. The BBC’s mission, as outlined in the charter, is “to act in the public interest, serving all audiences through the provision of impartial, high-quality and distinctive output and services which inform, educate and entertain”. The charter defines the BBC’s public purposes as follows:

  • to provide impartial news and information to help people understand and engage with the world around them
  • to support learning for people of all ages
  • to show the most creative, highest-quality and distinctive output and services
  • to reflect, represent and serve the diverse communities of all of the United Kingdom’s nations and regions and, in doing so, support the creative economy across the United Kingdom
  • to reflect the United Kingdom, its culture and values to the world

The current royal charter started on 1 January 2017 and ends on 31 December 2027.

The BBC is principally funded through the licence fee paid by UK households. In 2021/22 this generated £3.8bn. In addition, the BBC’s commercial operations, such as BBC Studios, provide supplementary income. In 2021/22, the BBC made £1.7bn through its commercial operations. The BBC World Service also receives some funding from the Foreign, Commonwealth and Development Office (FCDO).

In January 2022, the government announced the licence fee settlement which would apply until the end of the charter period in 2027. The settlement included a freeze in the licence fee for two years, from 2022/23, followed by a rise in line with consumer price index inflation until 31 March 2028. The then culture secretary, Nadine Dorries, also argued that it was time to “look further into the future” when considering how the BBC should be funded in “a changing digital landscape”.

On 28 April 2022, the government under Boris Johnson published a white paper on the future of broadcasting. The white paper included plans to carry out a review of the licence fee funding model ahead of the next charter period. It stated that more detailed plans would be announced in the coming months.

In February 2022, the House of Lords Communications and Digital Committee announced that it was launching an inquiry to examine “how the BBC should be funded in future to deliver what is needed from a national public service broadcaster”. The committee said its work would build on that done by the previous Lords Communications and Digital Committee on its reports ‘Public service broadcasting: As vital as ever’ (published 5 November 2019) and ‘The future of Channel 4’ (published 26 November 2021). The committee also cited the work of the House of Commons Digital, Culture, Media and Sport Committee in ‘The future of public service broadcasting’ (published 25 March 2021). The House of Lords Communications and Digital Committee published its report ‘Licence to change: BBC future funding’ on 18 July 2022.

The House of Lords last debated the future of public service broadcasting on 3 November 2022. A House of Lords Library briefing for the debate was published. In addition, the House of Lords debated the BBC World Service on 1 December 2022. A House of Lords Library briefing for this debate has also been published.

2. Committee findings

The House of Lords Communications and Digital Committee report ‘Licence to change: BBC future funding’ outlined the current situation in media, both nationally and globally. It emphasised the transforming media landscape, the decline of linear TV consumption and the proliferation of digital alternatives. The committee also detailed the increasing production costs, changing consumer habits and changes in the market which all presented challenges to the way in which the BBC is funded. However, it argued:

[…] discussions on funding have too often become locked in a binary ‘for or against’ licence fee debate. This is unhelpful. Our inquiry sought to move beyond this impasse and set out clearly the complexities and consequences of changing the funding model.

The committee concluded that though the BBC had a central role to play in the life of the nation, “the status quo is not an option”. It outlined a range of possible alternatives to the current licence fee model. However, it concluded that some form of public funding for the BBC remained necessary, and that substituting the licence fee entirely for advertising was unlikely to succeed. Other findings from the committee were the following:

  • While noting the importance of the BBC, describing it as the “national glue”, this role was likely to become more complex in the context of increasing social, cultural and demographic change. The committee argued that while the BBC’s mission had stood the test of time, the BBC needed to change the way it delivered its mission and be guided in how it should change “by a clearly articulated strategic purpose and vision”.
  • The concept of universality remained central to the BBC but suffered from a lack of clarity. The committee said “it does not necessarily mean delivering everything for everyone across every platform, or that everyone must pay the same”.
  • Providing services that were underserved by the private sector was an important role of the BBC. However, it should not be its sole focus; it also plays a central role in supporting and shaping the creative economy. The committee concluded “this market-shaping work should feature prominently in the future vision” of the BBC.
  • The international role of the BBC was essential and ever more important in an era of declining press freedom and rising authoritarianism.
  • Although the BBC could not provide content that pleased everybody all of the time, the committee found that the BBC was not representing all sectors of society.
  • The BBC needed to operate in “a more flexible and nimble regulatory framework” in the future. The committee welcomed proposals by Ofcom to update the BBC’s operating licence and give the BBC greater flexibility in how it met audience needs.

The committee examined different funding models for the BBC. It found that a purely advertising-funded BBC was “highly unlikely to be viable”. In addition, a subscription service “would generate insufficient income whilst introducing disproportionate barriers to access”. Given this, it argued that some form of continued public funding for the BBC should be retained:

  • The committee considered both a hypothecated income tax and a universal household levy, potentially collected by linking the levy to the council tax. The committee also explored ‘contestable funding’, which would involve public funding being allocated to public service content on a programme-by-programme, rather than an institutional, basis.
  • The committee examined the use of a hybrid domestic subscription model and a hybrid international subscription service, although it noted that this might involve commercial risk with no guarantee of success.

The committee concluded that while the future funding model of the BBC was an important issue, the BBC should use the opportunity presented by the debate to “embrace its challenges” and “generate momentum for change” as part of a “necessary broader re-evaluation”.

3. Committee recommendations

The report included a range of recommendations regarding the potential future funding model for the BBC:

  • The committee reiterated its previous proposal that the government set up an independent body to advise it on the licence fee or new form of funding.
  • The BBC should provide a clear definition of its understanding of universality, detailing how this, alongside its strategic purpose, will shape its future decisions on programming and allocation of resource.
  • When responding to the independent review (which the government confirmed it had commissioned in July 2022) the government should explain how the BBC’s future funding model would “incentivise” the BBC to strike “the right balance” between market-shaping and providing services underserved by the private sector.
  • When responding to the committee, the government should commit to commissioning and publishing independent market impact studies ahead of any decision on the BBC’s future funding model.
  • When responding to the independent review, the government should commit to safeguarding, and potentially enhancing, the role of the BBC World Service. It should publish an assessment of the benefits that the BBC’s international output provides and set out how changes to the BBC’s funding might affect these benefits. An interim update on this work should be provided by the government by 1 December 2022.
  • The BBC should provide the government with scenarios and estimates to inform its work on the benefit of the BBC’s international output.
  • The BBC should publish a comprehensive long-term vision which it should submit to the government’s independent review. The vision should include costed options for future funding mechanisms and details of what the BBC would stop doing, what it would do differently and what it would start doing. The vision “will require fresh thinking and a more open-minded approach than has been shown in the past”.
  • The BBC should continue to work to show more overtly that is “respects, understands and reflects all sectors of UK society”.
  • In response to the committee’s report, Ofcom should set out how it intends to provide a swifter approach to regulatory changes. The government should also outline its plans for introducing regulatory updates.
  • The BBC should not move to a purely advertising-funded model, or purely subscription-funded model, or be funded by government grant. Contestable funding, where public funding is allocated to public service content on a programme-by-programme, rather than an institutional, basis should not be the primary alternative to the licence fee.
  • When responding to the independent review the government should analyse the implications of retaining an “opt-in” approach versus changing the funding model to a universal levy or similar. The BBC should undertake a similar assessment.
  • The government should consider the merits of contestable funding as an additional source of funding for underserved areas of public service content. This would need to be separate from the BBC’s existing income.
  • The BBC should explore and publish costed options for hybrid domestic and international subscription models.
  • The committee was also against a funding model which placed BBC radio behind a paywall, estimating that this would not be feasible “within the next 15 years at least”.
  • The government should publish a plan and timeline for how it intends to engage the public in discussions and decisions about the BBC’s future funding model. In addition, the proposed funding model should be debated in Parliament prior to any decision to introduce it.

4. Responses to the report

4.1 BBC response

Director-General of the BBC Tim Davie responded to the committee’s report on 21 October 2022. Mr Davie welcomed the “original and thought-provoking work” of the committee. He highlighted the work that the BBC was already undertaking to respond to the challenges of meeting the needs of audiences in an increasingly digital and global competitive market. Mr Davie also explained that the BBC was guided by five key principles when considering future funding. These were:

  • Does it deliver the mission?
  • Does it safeguard impartiality and independence?
  • Does it provide a sustainable financial model?
  • Does it help the creative economy grow?
  • Does it deliver fair value for audiences?

Mr Davie noted “this will require confident and clear proposals from us which we are currently working through”.

4.2 Government response

The government published its response to the committee in October 2022. Welcoming the committee’s report as a “valuable and constructive contribution to the debate”, the government agreed with the committee that the issue was becoming more salient. It stated that “a comprehensive review of the licence fee system is both a necessity and positive opportunity for the BBC”.

In addition to highlighting its belief that “the BBC is a great national institution”, the government reiterated its concerns about the fairness of the licence fee model, particularly in relation to criminal sanctions for enforcement. It also thanked the committee for its analysis of the different options for funding the BBC, such as advertising, contestable funding and subscription models. The government noted that it would set out its responses to these recommendations following the review. It also provided the following responses to the committee’s recommendations:

  • It committed to considering how the BBC’s future funding model would “incentivise” the BBC to strike “the right balance” between market-shaping and providing services underserved by the private sector. This would be done “as planning for the review progresses”.
  • It recognised “the important role the BBC World Service plays”. Although not committing to safeguarding or enhancing it, the government stated “the upcoming review of the funding model will be expected to work closely with the FCDO and ensure that the World Service is given proper consideration”.
  • Noting the importance which the government placed on the BBC World Service’s contribution to UK soft power, it argued that “any review will need to consider the impact of alternative models on the World Service and the BBC’s international output”. It did not commit to publishing an assessment of these benefits/impacts or an interim update by 1 December 2022.
  • It committed to considering potential regulatory updates following Ofcom’s consultation on the subject, or separately where it is outside the scope of the consultation.
  • The government recognised “the significant challenges” of placing the BBC radio services behind a paywall. However, it noted “we do not want to rule out options at this stage”.
  • Although not committing to publishing a plan and timeline for how it would engage the public in discussions about the future funding model, it did note that “we expect the review itself to engage widely with stakeholders and to consider public interests and attitudes”.

In addition to the October 2022 government response, Minister for Media, Data and Digital Infrastructure Julia Lopez also wrote to the chair of the Lords Communications and Digital Committee on 10 November 2022. The letter provided details regarding how the BBC funding model review fitted into the government’s road map toward the next BBC charter period, beginning in 2028. The minister outlined:

The BBC Funding Model Review will be one part of the government’s preparations for Charter Review, which is the process where any decision on a new funding model, and on the role and remit of the BBC over the next Charter Period, will be determined. By carrying out the review specifically on funding models, we will be able to approach the formal and full Charter Review process with a strong understanding of the options and their potential impacts on the BBC, the broadcasting sector and audiences.

The minister explained that any review would include a formal public consultation on any changes to the BBC’s funding model and any final decision on the BBC’s funding model “would only be made following the public and parliamentary engagement that must take place as part of the Charter Review”.

In addition, the minister committed to publishing an assessment of the market impact of any decision, noting that this may be published either alongside the outcomes of the funding model review or as part of the charter review.

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Cover image by Rich Smith on Unsplash.