Funding the BBC 

1 April 2007

In the wake of the recent Licence Fee decision, the BBC’s current method of funding might be reaching the end of the road a mere decade from now, 90 years from its inception. Almost everyone seems to dislike the licence fee – but what are the alternatives? Are they viable? And what would be the likely results of their introduction?

The White Paper published in 2006 on the future of the BBC promised to retain the licence fee as the Corporation’s primary source of funding for the following ten years. To predictable howls of protest from the right-wing press and political parties, the Department for Culture, Media and Sport (DCMS) decided to defer radical changes to the BBC’s funding until at least 2016. The political right might have been forgiven a little schadenfreude when the below-inflation cost of the licence was finalized in early 2007.

To its critics, the licence fee is an iniquitous tax, forcing every household with a television to pay over a hundred pounds to a broadcaster whose content, in some cases, none of the inhabitants consumes. It’s a bit like trying to buy the Guardian, only to be told that you must also pay for the Mail or Telegraph.

Nonsense, argue the BBC’s supporters. The BBC is the only broadcaster in Britain not hidebound by vested interests or corporate or political agendas. The BBC produces a lot of output that the commercial sector wouldn’t even consider. It is vital to the cultural health of the nation that the BBC should retain a guaranteed source of funding that is sufficient to complement the commercial broadcasters.

Both sides have a point. The BBC does make a crucial contribution to British culture, and over the years its best output has been beyond reproach and the envy of the world. However, it seems fair to argue that were it not already to exist, the chances of deciding upon such a fee to fund the BBC in this day and age would be slim indeed.

So why does the licence fee exist? The answer, here as with so much else, lies in history. In the early 1920s, wireless broadcasting was still in its infancy. In the United States, a gaggle of (largely unregulated) private companies were broadcasting varied content to the lucky few who could afford the early radio sets. These stations operated in a very laissez-faire manner, and frequency clashes were not uncommon. Over here, the Post Office, which at the time controlled wireless communications, wanted a more orderly solution.

Several experimental broadcasts had already taken place by this time. Encouraged by the Post Office, a number of companies with interests in the production of radio receiving sets formed the British Broadcasting Company Ltd in late 1922. The main shareholders were Marconi, GEC, British Thomson Houston, Metropolitan Vickers, Western Electric and the Radio Communication Company. It was essentially what today we would understand as a subscription service: listeners paid an annual fee for a licence to operate radio sets capable of receiving the BBC’s broadcasts.

When the BBC was reconstituted as a national corporation in 1927, the licence fee remained its principal source of revenue. This was uncontroversial at the time, because the BBC was (ostensibly—there was always Radio Luxembourg and its ilk) the only supplier of services on radio.

The BBC’s monopoly was broken by the arrival, first of independent television in 1955, then commercial radio in 1973. But it was not until the arrival of cable and satellite television in the 1980s that calls to scrap the licence fee began, calls that gathered pace in the 1990s as Sky gained in popularity.

In the twenty-first century, with more than half of British households having access to digital-only programming, the licence fee looks less and less tenable. In purely commercial terms, the BBC’s critics are entirely right: the fee is an historical anomaly and should be scrapped. However, broadcasting has such an impact on society that it cannot be viewed purely in commercial terms excluding all others. This is not special pleading; even the United States recognizes this fact by allocating tax dollars to fund the Public Broadcasting System (PBS), although the way in which it does so holds lessons for any would-be reformers of the BBC, as we shall see below.

So, before we consign the licence fee to history, it is worth evaluating the arguments for and against, then considering the alternatives.

The licence fee has two primary advantages. It removes from the BBC the need to interrupt programming with adverts (although the lack of “toilet breaks” or “tea breaks” can itself be annoying), and it allows the BBC to go where the commercial sector never would, either because the likely audience is too low or because a production would cost too much to make. As your correspondent wrote in the letters page of The Economist some years ago, “even the most elitist and highbrow programming on commercial television has to be paid for, and some of the adverts that pay the wages make even the worst of pay-television seem attractive by comparison. This is reason enough not to privatise the BBC.” And whether Granada Television (or any other company) would ever again commit itself to the sort of budget it lavished on the 1980s period dramas Brideshead Revisited and Jewel in the Crown is anyone’s guess.

The existing system has one other, crucial, advantage. That the BBC’s funding is guaranteed by Royal Charter and fixed at regular, infrequent intervals allows it to ask awkward questions of those in authority, secure in the knowledge that it cannot be “punished” by cuts to its funding by the Government (unlike PBS in the United States), or the withdrawal of advertising. Even when the BBC gets it wrong (the Gilligan affair being but an extreme example) and executives carry the can, the Corporation is immune from reprisals. (This does not allow individuals to escape accountability—just ask Greg Dyke.)

Finally, as the licence fee does not come out of general taxation, the BBC’s funding is not subject to the periodical squabbles that occur when government departments jostle to get their cut of tax revenues. The Government cannot decide that there are more pressing demands for the BBC’s money and reallocate it elsewhere, as again in the United States, Congress is wont to do with PBS.

The main disadvantage of the licence fee is that it compels every household with a television to buy a licence, on pain of imprisonment and a criminal record, whether or not it consumes any of the BBC’s output. Being aware of this, the Corporation sometimes succumbs to pressure to appeal to as many people as possible. Fine—except the commercial sector then complains that the BBC is encroaching too much on its turf. And if the Corporation doesn’t cater to a mass audience, people will ask, justifiably, why they are not getting any return for their licence fee, which many people regard as some sort of poll-tax.

The other potential problem concerns accountability. In business, managers know that if they run their companies irresponsibly, they can be held to account by the shareholders and the banks. A state guarantee removes that incentive for good corporate governance. The commercial broadcasters know that if they do not give their viewers what they want, they will go elsewhere and the advertising revenue will dry up. The state guarantee, in the form of the Royal Charter, enjoyed by the BBC gives it some form of immunity from the commercial pressures under which ITV operates. So there need to be alternate structures to ensure that BBC executives are held to account.

What of the alternatives to the licence fee? There are five basic sources of revenue, some of which could be combined: advertising, subscription, pay-per-view (PPV), a public-service broadcasting (PSB) tax whose income is available to all broadcasters to fund worthy programming, and funding by direct taxation. And of course there is the nuclear option of breaking up and privatizing the BBC.


Tried and tested method of funding television and radio programming. In Britain, commercial television and radio have been funded this way since the start of ITV in 1955.

Advantages: Advertising has the advantage that popular programming can pull in immense amounts of funding. Introducing adverts to BBC channels would mean that the likes of Eastenders or major sporting events such as the FA Cup Final could bring in millions of pounds in revenue. It would also give viewers decent intervals in the middle of programmes in which to make a drink or answer a call of nature (though this is much less relevant today in a world of Sky Plus and PVRs).

Disadvantages: The total amount of revenue available to business and industry to spend on advertising is finite. Arguably, with the hundreds of digital channels that now exist, this revenue is spread thinly enough as it is. Advertisers are hardly likely to welcome yet another batch of channels to cover. Minority interest programming, which often attracts few viewers, would be harder to finance in terms of advertising revenue unless it was cross-subsidised by more popular programming. And have you seen some of these adverts lately?


Broadcast services available to subscribers on payment of a periodical fee. It is sometimes enforced by legislation; more often today by encryption/decryption technology. Viewers subscribe either directly with the broadcaster, or the services are included as part of a package included in Sky subscriptions etc.

Advantages: Making the BBC a subscription service means that those who do not consume its content will not have to pay. This is a politically convenient option, because it will assuage some of those protesting about having to pay the licence fee. Also, the BBC would know who was subscribing to its services, and by dint of market research could target its programming more specifically to its audience.

Disadvantages: This option would almost certainly result in a net drop in BBC funding, requiring the Corporation to retrench and focus more on its core activities. It would also mean the end of the BBC as a national institution, charged as it currently is with its mission to “inform, educate and entertain”. The BBC, along with institutions including the Crown and Parliament, gives a certain degree of cohesion to us as a nation. Such institutions are supposed to command the allegiance and respect of everyone, irrespective of political ideology. It would diminish the BBC to the level of Sky.


The system used by some broadcasters for one-off sports events, such as boxing. Viewers pay on a per-programme basis.

Advantages: PPV can be highly lucrative for some high-profile events. It also ensures that people pay only for what they want to watch.

Disadvantages: The consequences for minority programming are pretty much the same as under the advertising model.

Public Service Broadcasting tax

This involves decoupling the licence fee from the BBC exclusively, and using it instead to fund public-service programming on any channel.

Advantages: This option, potentially, could benefit both the BBC and commercial broadcasters. The BBC, in common with other broadcasters, would use advertising revenue to fund what it could, drawing on PSB funds where necessary. The BBC currently spends substantial amounts of money on populist, mass-audience fare that would be just as much at home on ITV 1. Letting the commercial sector fund such programming through advertising would release this money for the sort of worthy but minority interest programming from which the commercial sector shies away. This approach would also allow ITV, Sky, etc. to win the sort of critical acclaim and brownie points through programming that, hitherto, commercial pressures have prevented them from making.

Disadvantages: Many of the arguments against advertising also apply here. Although the PSB tax would augment – and explicitly correct – the bias against minority programming inherent in the advertising model, the viewing public would lose the last bastion of television broadcasting that is advert-free. For some people, this would be a great pity. Also, opening up PSB funds to all broadcasters would scatter far and wide the sort of programming funded by this method, and perhaps make it harder for aficionados of such programming to find what they want. Furthermore, the criteria for qualifying for these funds would have to be drawn up tightly enough to ensure that commercial broadcasters (which, in a future environment, might include the BBC) are not able to use PSB funds for ventures which would be produced in any case. Finally, such a tax would be subject to scrutiny for compliance with European competition rules to ensure it did not constitute an illegal form of state aid.

Direct taxation

The method used in the United States to fund PBS. Instead of a licence fee, the Government allocates funding direct from the public purse.

Advantages: It is potentially less of a political hot potato than the licence fee. The annual payment of the fee is a constant reminder to the BBC’s critics that they are forced to fund a system with which they disagree. The Treasury can allocate the money to the BBC with no fanfare of trumpets, and, out of sight, the fact that the nation at large is still paying for the Corporation is more likely to sink out of mind.

Disadvantages: Direct funding from tax revenue makes the Government explicitly the paymaster, and you don’t bite the hand that feeds, now, do you? The threat of withholding money could always be used to neuter the BBC’s news and current affairs teams, and browbeat them into not asking awkward questions or probing into perceptions of official wrongdoing in high places. Also, when budgets are squeezed, the BBC’s budget would always be a soft target to plunder to the benefit of other Government departments.

One other option would be to privatize the BBC in its entirety, although this isn’t strictly a method of funding because as a limited company the BBC would still have to decide how best to finance itself.

The debate about what the BBC should do will run for as long as it co-exists in its present form with the commercial sector. Some newspapers (especially those whose owners have vested interests in clipping the BBC’s wings) say that the Corporation is too big and overweening, and stifles the commercial sector. It should not chase ratings but stick to what the commercial sector can’t do. Were the Corporation to be foolish enough to follow that advice, the same papers would then wonder how the Corporation can justify its existence when nobody watches it.

If calls to scrap the licence fee continue to grow, it is possible that come the next Charter renewal, the BBC’s funding, or even its very existence, could come under question. A review of the BBC’s funding might ask: is a nationalised broadcaster required at all? Should the State be involved with the process of broadcasting at all?

Until that time comes, ideally the BBC should continue to be funded as it is at present. If the BBC as a publicly-funded body ultimately loses the support of the public, and the government of the day caves in to popular sentiment, the next best alternative would be to decouple the licence fee exclusively from the BBC and use it instead to fund public-service broadcasting across a range of channels. The Corporation would take adverts to make up the short-fall.

If the BBC receives no special treatment vis-à-vis the other broadcasters over access to public funds, this more level playing field might mollify those who tend not to watch the BBC and who consequently resent paying for it. Alternatively, a future government might scrap the licence fee and fund public-service broadcasting across a range of channels out of the public purse.

The Corporation is not immune from criticism. The BBC is often accused of bias, in an environment in which all purveyors of broadcast news are bound by law to be impartial and non-partisan. Even Sky News (dubbed “BBC-Light” by Rupert Murdoch, owner of Sky’s largest share-holder) steers clear of the tub-thumping exhortations and polemical discussions familiar to viewers of Fox News (and readers of The Sun). Such accusations of bias are largely unfounded; many of them come from those on the neo-conservative right, for whom any failure of a news organization to pin its colours firmly to the mast is itself a sign of bias. If your centre of political gravity is firmly to the right, then a non-partisan (i.e. centrist) view will be to the left of that, which, for some, is all the evidence that is required.

No, the BBC is not institutionally biased, but individuals who are given access to the air-waves sometimes betray their own prejudices. Perhaps, in a broader way, the BBC collectively reflects the mind-set of its employees, as do many organizations. If the prevailing consensus of the workforce reflects a common attitude or set of sympathies, it is perhaps inevitable that sometimes such a prejudice is taken (inaccurately) as reflecting the BBC’s own position.

More serious is the tendency of news organizations, including the BBC, to devote parts of their bulletins to items that are plainly not news at all, such as cross-promoting other programmes on sister channels. For example, when Panorama aired on Sunday nights, immediately following the news, you could almost guarantee that one of the “news” items touched on the area under investigation, with the inevitable reminder to watch Panorama after the news. ITV News sometimes does the same thing with Tonight. And the recent trend, doubtless inspired by NBC’s Nightly News, of newsreaders to stand up and walk around is irritating and unnecessary, serving only to distract the viewer.

Recent changes to Radio 4, including the scrapping of the Radio 4 UK Theme, the frequent truncating of Sailing By and the now barely ninety seconds of Bells on Sunday will have irked listeners, to say nothing of the usurpation of Radio 4 on long wave by Test Match Special. BBC One is not the station that the BBC 1 of old was, even though it has improved somewhat since 2004. Perhaps it is just the discombobulation caused by the old being replaced with the new: one is accustomed to how things have been, and the unfamiliarity of the new blinds people to some of the arguments in favour of change.

For all of this, and in common with many of Transdiffusion’s regular writers, your correspondent favours the BBC as it has existed since the 1920s and believes that it is still an essential British institution. The licence fee has worked very well since the 1920s and there is no reason to alter the status of the BBC and the existence of the licence fee for so long as there remains in Britain the need for a well-funded public-service broadcaster.

A Transdiffusion Presentation

Report an error


Stephen Hopkins Contact More by me

You Say

10 responses to this article

SJR Blackburn 10 December 2012 at 7:52 pm

All this debate as to whether or not the BBC licence will survive and OMG what will they do without it?

Let’s face it, it’s a simple way to raise money and provide whatever you want for the fee. This is fundamentally wrong.

Why should one person pay ONE channel a licence fee. The arguement back is that it is a television fee! Rubbish. Only the BBC get this STATE FEE.

AND, on top of this,the BBC do not have to fight to stay on air, they automatically have the right to bebthere. Wrong, so wrong.

Every other television channel have to fight to broadcast and survive well enough through other means. Also, they have to listen to the public and promote a variety of programmes as possible including for the diverse community.

The BBC argue they are value for money, put the licence fee up all the time and have extra channels that are mostly off air or a repeat of the normal BBC channel.

I am sick of the licence fee it is way too high and the BBC content is rubbish compared to other channels. I refuse and have done for many years to watch any BBC channel now.

It is more than overdue that the licence fee was scrapped and let the broadcasters win their right to be there on content.

Or if the BBC are so insistant that it is in fact NOT a BBC licence but a broadcasting licence, then share the licence fee between all the channels.

I can’t stand the holier than thou attitude the BBC have of putting on whatever rubbish they want and charge for it. Scrap the licence.

Boggenstrovia 1 January 2013 at 5:20 pm

Really? The number of times I have heard this argument about the licence fee is similar to the argument that that there is nothing ever on the television itself, but I find it strange that people who use these terms are usually the ones who do go to the BBC to find out what is going on in the world.

By no matter what the corporation has done in the past or doing today, it will still get this ‘state’ fee and besides television companies do not only get their income from fees. All of the broadcasters make money from merchandise such as DVD’s and other products licensed to be sold along with programme sales both at home and abroad which makes up the a fair slice of profits earn, such as

versions of Top Gear, Strictly Come Dancing along with other programme formats as well including children’s broadcasting and factual programming.

Plus the case of listening to the public, maybe has also got us into this grey porridge of programming and formats that exist now. Its a case of not giving the public what they want, but actually of what they need. It seems a near sighted view to take, however broadcasters actually survived pretty happily without it for a long time.

Yes, there are things that the BBC could do better

and that could be said for all broadcasters. They do offer something and that said there is a lot more choice on offer now and with television competing against new forms of entertainment and education, it maybe vary in forms of quality but is it better to have some choice then no choice at all?

Arthur Murgatroyd 7 January 2013 at 2:12 am

“forcing every household with a television to pay over a hundred pounds to a broadcaster”

The licence is to receive television as broadcast live not a licence on the device.

Unlike the Republic of Ireland, in the UK of Great Britain and Northern Ireland, Isle of Man, and Channel Islands, the household only pays the licence fee if the television or in fact any receiving device (recording device, computer with TV card or internet connection, cellphone etc) is used to receive to television as it is being broadcast live.

“Direct funding from tax revenue makes the Government explicitly the paymaster, and you don’t bite the hand that feeds, now, do you?”

Hence the BBC now enforces self-censorship (but not always successfully) following the Gilligan affair which resulted in the government paymaster not giving the requested increase in the licence fee and the subsequent skimming off the top of licence funds to pay for BBC World Service, S4C, and apparently (?) broadband expansion in rural areas.

Ater all if the BBC was not caught lying, why was Gavyn Davies Chairman of the Board of Governors and Michael Grade Director General forced to resign unless it was direct political interference by the government thus proving that the government can and does dictate what happens at the BBC?

Perhaps it is time that BBC appealed directly to its most ardent fans and viewers for funding through membership supported pledge drives to make up the shortfall from the licence fee?

Meanwhile the BBC is making quite a bit of money from its commercial tv networks, operated under the UKTV brand, so viewers already now what the BBC with TV commercials is actually like. Even the BBC branded BBC World satellite TV news service carries TV commercials.

Arthur Murgatroyd 11 January 2013 at 5:35 pm

Further proof from today’s [2013-01-11] Daily Telegraph that the licence fee method of funding of the BBC does not protect the editorial independence of the BBC, nor prevent the government from getting its appointed BBC governors (now BBC trustees) from banning programs it does not want broadcast.



[Alasdair Milne] arrived in London to find that the the Board of Governors, under pressure from the Home Secretary, Leon Brittan, had insisted – against precedent – on viewing the programme and then banning it.


Furthermore Alasdair Milne, having enraged the Thatcher regime even further with documentaries critical of the government, was subsequently fired as director general and editor in chief of the BBC and replaced by a man approved by and loyal to the Thatcher regime, Michael Checkland.

And thus began the current era of the BBC “being led by pygmies in grey suits wearing blindfolds”.

N. C. Galbari 30 June 2013 at 5:02 am

Terrific article, Stephen.

Here in the U.S., Government funding of PBS stations is being heavily cut. Pledge drives are often missing targets and many stations are not reaching financial goals. This has resulted in programming reduction, especially from independent filmmakers who serve the underserved and minority populations. PBS is considered leftist, yet many still trust its news and political programming more than they do the commercial programming.

Many of the PBS programs are considered elitist, and supporters (through membership) of the stations value the BBC or BBC-PBS programs that are aired on these stations. The Government cuts now force PBS stations to garner more funds from corporate sponsors, as lower-level memberships do not cover programming. Large donors and corporations are necessary to make up funding losses, yet the increased number of corporate sponsors now translates to more ‘messages’. Are these advertisements? Not quite. They don’t interrupt programming, but are aired between programs, which is much less annoying.

Pledge drives are, at least, fair. They invite viewers to call in or go online to support the station. Specific programs may garner larger returns, while other programs may not. Thus, the stations know exactly what their viewers wish to see and where the support lies.

I believe the BBC and PBS do share a belief that good programming — in the form of educational offerings, fine arts and music, intelligent programs and trusted news sources — are important to a country’s culture, overall.

Commercial television here is something I would just not consider watching at all. IF PBS stations were to cease operation, I would simply not watch television at all.

The road ahead is a challenging one for the BBC and PBS — it is our hope that solutions will present themselves as we work through the maze.

Thank you for an excellent, informative article.

trevor 20 May 2015 at 7:41 pm

I tend to Judge the License fee in terms of Value for money.
the fact that the BBC started broadcasting on 22 August 1932
to this very day
makes it difficult to doubt how the public feel about what they get in return for their money.
it’s not difficult to understand why many feel that the License fee should be scrapped
especially now that “free TV” is widely available through many mediums.
I also think that many people dislike the Heavy handed approach used by the BBC to stop people watching their channels without paying the license fee.
and the fact that despite watching TV without a License continues to be a criminal offense,
many people ignore that and Just watch as they please.
I personally decided to end my subscription in 2013
and no longer watch any TV.
and believe it or not…I Don’t have any regrets.

Pat Western 27 May 2016 at 3:29 pm

BBC do raise money through advertising BBC world. Though I can not find out when that started. How can it be true too if the licence fee is still thought of as the only way BBC is funded?

Russ J Graham 27 May 2016 at 3:59 pm

That service is not seen in the UK. The money made from the foreign advertising pays for the service to make it cost-neutral to the licence fee payer. Any profits made from those foreign advertising sales are pumped back into the BBC, reducing licence fee demand.

Brianhargreaves 11 June 2019 at 4:54 pm

It’s funny really Gordon Browns (labour) Government grant free television licenses to pensioners over 75, the same pensioners were recently portrayed as heroes on the 75th anniversary of the Second World War, and now the bbc suddenly revoke free television licenses from, those so called heroes, it should also be added strongly that the bbc revoked free television licenses because the conservative government didn’t have the balls to carry out this dastardly deed, instead leaving the option down to the bbc. Who said the bbc was not political controlled under the wing of its masters CONSERVATIVES,

ursula badger 16 October 2019 at 2:04 pm

I understood the BBCare the sole broadcaster and all
Channels pay them to use the facility.
Why not ask the hiring broadcasters to increase their
Dues to use the BBC facility ? I would like the BBC to
Have the money they need, but why the public and not
The hiring channels to provide it ?

Your comment

Enter it below

A member of the Transdiffusion Broadcasting System
Liverpool, Tuesday 26 September 2023