‘Axe The Tax’, or ‘Why the licence fee should be abolished’

by Stephen Tall on February 6, 2005

You get home from a hard day’s work, switch on the television, and settle back for an evening’s perfect viewing. What would your ideal schedule look like? Everyone will have their own favourites, but here are mine: a couple of first-rate dramas (Inspector Morse, GBH, Brideshead Revisited); perhaps a ground-breaking documentary (The World At War, Dispatches); and then, to send me to bed with a smile, some delicious comedy (Jeeves & Wooster, Brass Eye).

The sharp-eyed will have observed a unifying theme in my personal selection: all those programmes were the product of commercial television. They were not chosen for the purposes of engaging in sterile debate about which channel is best (of course I could have found paragons from the BBC’s back catalogue) but to highlight the danger in equating public service broadcasting with ‘Auntie’. They are not the same thing at all, just as socialism is not, pace Herbert Morrison, what a Labour Government does.

The ‘Golden Age’ is dead. Long live the ‘Golden Age’!

So, if not the BBC, what is public service broadcasting? A sensible definition might be a mixed schedule of high quality programmes – covering all genres, both mainstream and minority, with a strong regional presence, and a news and current affairs service which commands respect for its integrity – to which there should be universal public access. Its aims should be to correct market failure, support the conditions necessary for a mature liberal democracy to flourish, and to reflect the diversity of audience interests. It is when one examines how this is best achieved (or, to put it more crudely, how it is paid for) that the arguments begin.

It was all so much simpler back in television’s ‘Golden Age’, as it is so often regarded through rose-tinted spectacles by myopic eyes. Scarce analogue broadcasting frequencies restricted viewer choice to a handful of channels. These were funded by the BBC’s private poll tax, the licence fee, and by “the viewers’ free lunch”, as Channel Four’s Barry Cox has termed the strictly regulated advertising funding that underpins the commercial terrestrial channels.

Those days are dead, as Cox delineated in his 2003 series of lectures, TV in the digital age, during his stint as visiting professor of broadcast media at Oxford University. Satellite, cable and digital technologies have transformed the broadcasting landscape, introducing a growing band of subscribers to an expanded range of wheat and chaff viewing. The consumer demand is clearly there. Around half of British households are currently equipped to receive multi-channel television; this will rise to some 80 per cent in 2010. In 2001, almost £3 billion was spent on subscription-television, and a further £1.3 billion on renting and buying DVDs and videos. We are quite evidently prepared as a nation to use our disposable income to pay for our television entertainment, over and above the licence fee.

In the next few years, that pace of change will continue its exponential acceleration. Sky+ is leading the way in bringing the potential of personal video recorders to its audience. Subscribers can, for instance, pause live television, rewind mid-programme to catch up with the show later, record two channels simultaneously, and store and organise hours of recorded programmes. This revolutionises viewing habits, as almost everything is watched through Sky+ rather than live. The extension of broadband telecoms services will add another layer of techno-gimmickry, with viewers able to play games online, and download (or swap) audio and video files.

We are within touching distance of the television set becoming an ‘entertainment portal’, via which consumers will be able to access a vast range of services. This advance of broadcasting towards a free market, with viewers exercising real control over their individual preferences, should be embraced by liberals.

The political failure of understanding

Expanding consumer choice may be a worthwhile aim in itself, but it does not guarantee that public service broadcasting will survive and thrive. What threatens it most is the inability of political parties to respond to the implications of the new digital age, and their nostalgic reliance on the BBC to act as a monopolistic provider of public service broadcasting.

They have no excuse. The Government’s Communications Bill (2002), the Tory-commissioned report by former Channel 5 and Sky boss David Elstein (which was swiftly disowned post-Hutton), and the Liberal Democrats’ policy paper, The Future of Broadcasting (2002), have all provided acute analyses of the digital future. Each party has acknowledged that technology will transform the public consumption of television, and that this challenge to the status quo poses questions for the future of public service broadcasting.

Yet all have shirked the inevitable conclusion: that existing funding arrangements will have to alter to reflect the changing patterns of supply and demand in multi-channel Britain. To put it another way, the licence fee might well have been a targeted smart-bomb that corrected the market failings of the analogue era, but, in this new digital age, it is a weapon of mass media destruction.

Traditional assumptions in a modern setting

Two prevailing assumptions, as relevant as ever, have guided successive governments’ approaches to public service broadcasting for the last 50 years. The first is that public funding is essential to correct market failure given the importance of broadcasting to our society’s political and cultural climate. The second is that standards in public service broadcasting can be improved by governments helping to frame the market conditions in which rival channels compete on a level playing field to provide high quality programming. This vital tenet is too often forgotten by liberals, and should be championed with greater vigour and focus.

For half a century, public service broadcasting flourished thanks to the conspiratorial symbiosis of its two great institutions, the BBC and ITV. The genesis of the advertising-funded ITV in the 1950s jolted the public-funded BBC into belated recognition that it could best foster its reputation as the voice of the nation by making quality programmes with popular appeal. By the same token, ITV’s public service remit – to provide news, religious, educational, arts, children’s and regional programming – forced it to think afresh how these genres could be made accessible to a mass audience, so safeguarding its advertising revenues.

This compact between the BBC and ITV was the basis for Britain’s public service broadcasting for half a century. The longevity of this cosy duopoly perhaps explains the reluctance of politicians to believe that it could have been so abruptly shattered. But shattered it has been, and the pieces cannot, should not, be glued back together.

Decline and fall of the BBC-ITV compact

‘Dumbing down’ is fast becoming this decade’s most tired cliché: that the phrase is itself a media-savvy reductio ad absurdum is a meta-irony quite beyond its propagators. Its application to television by the medium’s many detractors is all the more frustrating because of their obstinate refusal to try and understand the economic drivers responsible for the programmes of which they complain.

The BBC-ITV public service broadcasting compact was a product of the analogue era. The licence fee was justified by the BBC allowing its talented employees the freedom to create programmes which otherwise would not have been made, secure in the knowledge that the public’s limited viewing options would guarantee an audience no matter how difficult the subject matter. Meanwhile, ITV’s stranglehold on television advertising revenues enabled it to take creative risks, making important but unprofitable programmes which were subsidised by its cheap and cheerful game shows and soap operas. The BBC licence fee was increased in line with ITV’s advertising revenues to ensure reasonable parity between the rivals’ programming budgets.

The increasingly fragmented viewing habits of multi-channel households are stifling both the BBC’s and ITV’s creative impulses. Their Venn Diagram relationship is morphing into one circle, which neither institution is capable of squaring.

The BBC: a grasp exceeding its reach

The BBC’s problem is the most obvious. Its privileged position as sole licence fee beneficiary obligates it to demonstrate its national appeal: if everybody’s paying for it, we must all feel we are getting our money’s worth. That used to be a slam-dunk. As recently as 1995, the Broadcasters’ Audience Research Board put the BBC’s ‘reach’ (the proportion of those who watch a channel for at least 15 minutes a week) at 94 per cent. However, by the first quarter of 2004, it was down to 89 per cent; its reach was just 82 per cent among 18-34 year-olds.

The fact that one in 10 of the television population do not tune into the BBC in any given week is not due to any lack of effort on the corporation’s behalf. The BBC set out its stall quite explicitly during Greg Dyke’s tenure as Director General: to become the nation’s most popular broadcaster. The government approved inflation-busting hikes in the licence fee to pay for the launch of six new digital channels to supplement BBCs One and Two, a self-conscious effort to target niche audiences, and maintain near-universal reach.

More controversially, it has indulged in flagrant copycat-programming (Fame Academy and Celebrity Sleepover), and raided its licence fee-engorged war-chest to out-bid other terrestrial channels for blockbuster films (Harry Potter). The result is that if, on any given night, the peak-time output of BBC1 and ITV1 were submitted to a ‘blind taste test’ they would be virtually indistinguishable. The BBC’s public service remit has become sublimated to its ratings obsession, and yet this is a perfectly understandable response to the political imperative to preserve its universal voice in the digital age.

As the BBC struggles to resolve this Catch-22, it should come as no surprise that the £121 licence fee is the focus of resentment among those households which find the corporation surplus to their viewing requirements. An NOP survey in 2003 found, for the first time, a narrow majority, 51 per cent, who did not believe the licence fee is good value-for-money, up from 42 per cent in 1999. Moreover, it was the poorest who were the least satisfied, with 60 per cent of ‘C2DEs’ describing the BBC as poor value.

That survey was commissioned by Sky, however; so let us instead turn to the BBC’s Panorama, which published its own ICM poll in March 2004. The results provided little comfort for BBC bosses. Two-thirds of the public said the corporation should be funded by either advertising or subscription, with just 31 per cent endorsing the licence fee. Some 58 per cent believed that the BBC’s programmes were too similar to those of rival channels.

This is the BBC’s dilemma. If it chases ratings to retain its universal appeal it is accused of ‘dumbing down’: if it focuses on its public service remit it risks losing viewers and growing licence fee resentment.

ITV: the end of the “viewers’ free lunch”

ITV’s problems are, if anything, more acute, since its survival is dependent on the commercial viability of its output. Its privileged position as principal beneficiary of lucrative advertising revenues has for decades enabled it to invest in low-profit (or loss-making) programmes.

There is no inevitability, though, that advertisers will continue to choose ITV in the multi-channel age, or, if they do, that ITV will be able to charge what they could in the past. The trends are clear. In 1997, ITV commanded a 33 per cent audience share, and 65 per cent of TV advertising revenues. By 2003, just six years later, this had slipped to a 24 per cent audience share, and 54 per cent of advertising revenues. If it is to provide its shareholders with good value, ITV will increasingly be forced to maximise revenues from every available programme slot. Each morning, at 10 am, channel controllers drop everything to examine the overnight ratings: already ITV gives short shrift to those shows which cannot guarantee the audiences their advertisers demand.

ITV is not, of course, the BBC’s sole competitor, but, as a network which is a publicly-quoted company, it is the most exposed to such commercial pressures. State-owned Channel Four remains protected from the extremities of the new digital climate; while Five’s business planning was predicated on an initial audience share of just five per cent. However, it is reasonable to assume that the vicissitudes of multi-channel Britain will have an inescapably negative impact on the commitment of all the commercial terrestrial channels to public service broadcasting.

In other words, we are on the verge of turning the broadcasting clock back to its pre-ITV existence, in which the BBC is de facto the sole purveyor of public service broadcasting.

W(h)ither public service broadcasting?

So what fate awaits public service broadcasting in the digital age? The utterances of the political parties suggest they believe no fundamental changes are necessary. The Liberal Democrats’ view is clear: “There should be a strong public service ethos underpinning broadcasting … this is best achieved through the BBC in its current form, along with public service remits carried by other broadcasters.” The BBC, the party maintains, should continue to be funded by the licence fee.

Such a strategy is fatally flawed by its refusal to appreciate broadcasting’s shifted sands. Progressive liberals should not espouse regressive economic policies: enshrining a poll tax-funded BBC as the monopolistic supplier of public service broadcasting will erode standards, and restrict the choice of the television consumer. Instead we should try to harness the new technologies to make available to the maximum number of people the benefits of the new multi-channel digital age. At the same time, we must endeavour to ensure the market conditions exist in which these channels compete to create the highest quality programmes.

Axing the Tax

But how do we achieve this? A prerequisite is the axing of the licence fee, that anachronistic hangover from the analogue era. It is not just that the licence fee perpetuates the myth that the BBC and public service broadcasting are one and the same. More importantly, it is insupportable to make the growing numbers of those who do not wish to watch the BBC pay for it regardless. Regressive taxation militates against social justice, and should be used sparingly; for example, to tackle environmental externalities. As David Elstein has noted, “Half of the population, many of the poorest, don’t have digital television, yet they fork out up to £400m a year for it. At the moment, it’s not a market; it’s compulsory purchase.” It is no surprise that, in 2001, of the 121,124 people prosecuted for television licence evasion, the vast majority were poor, unemployed, single parents. Bluntly, those who can least afford it are helping to subsidise the cultural pleasure of those who can.

The BBC could, of course, survive the removal of its licence fee income by becoming a subscription-funded broadcaster, paid for by those who actively choose to watch its programmes. The Japanese public service broadcaster NHK is paid for by a voluntary licence fee to which 90 per cent of those in rural areas, and 60 per cent in the cities, sign up. Some people would, inevitably, stop watching the BBC, but at least the corporation would not need to waste its creative juices devising ever more populist ways of reaching out to those who are just not interested. Instead, it could concentrate on making dramas as darkly compelling as Six Feet Under, and comedies as daringly zeitgeist as Sex And The City, both of which are the products of the American pay-television channel HBO.

Mapping a liberal future

With the licence fee dispatched, a sensible discussion can commence on the best way to enhance public service broadcasting. So let us return to our earlier assumptions: that public funding remains a necessary corrective to market failure; and that governments should frame market conditions to ensure rival channels compete on a level playing field.

The most obvious present market failure is that half the population currently does not have access to digital, cable or satellite television, whether by personal choice or economic necessity. That gap will, however, be bridged within the next decade, as digital adapters become more affordable, and as households update their television sets to digital-compatible models. By 2014, we can safely assume there will be near-universal access to the digital age.

It is the cultural failings of the market, therefore, which should most exercise us if, as predicted, the commercial terrestrial channels increasingly withdraw from their public service remit, leaving a void which the BBC alone is fit to fill. Our agreed aim must surely be to promote a plurality of channels whose healthy rivalries ratchet up the quality of their respective programmes. What mechanism is available, then, that will assist all post-licence fee public service broadcasters to continue making ‘merit good programmes’, shows which contribute more to society than their economic value?

The obvious solution is to create a public service fund to which all broadcasters would be able to bid. Two variations on this model have recently been proposed. One version, put forward by David Elstein, and which also argues for the ending of the licence fee, would establish a new Public Broadcasting Authority, answerable to Ofcom, to run its “contestable funding” of up to £1 billion (and out of which BBC radio would continue to be funded). It would be paid for from the VAT levied on pay-television subscription services, or by new spectrum taxes imposed on all commercial broadcasters.

An alternative, propounded by Barry Cox, Tim Gardam and Adam Singer, (and which consciously eschews the controversy of licence fee abolition), would establish a public service fund to which any commercial broadcaster could bid for matched funding.

These ideas appear to have inspired OfCom, the new media regulator, to being to ‘think the unthinkable’. In November 2004, they launched their vision of a ‘public –service publisher’ to provide the BBC with some competition at the quality-end of the market. The PSP would not necessarily be a television channel, but rather a £300m independent producer responsible for creating around three hours of ‘merit good’ television a day available for distribution via a range of media outlets, including broadband-connection personal video recorders such as Sky+. OfCom is consulting on three options for funding the new organisation: a supplement to the BBC licence fee; general taxation in the same way the BBC World Service is funded; or a tax on the turnover of other broadcasters. This is undoubtedly a step in the right direction, but it begs a question. Is it justifiable to use public money to set up a rival to an existing publicly funded institution? Either public service broadcasting is a naturally monopolistic industry – in which case a licence fee-funded BBC is the only answer; or there is scope for competition to drive up standards and reduce taxpayers’ liability – in which case what is the justification for the BBC licence fee?

And finally …

There are two alternate visions of the future of public service broadcasting. The first, to which the three main political parties are currently wedded, accepts the realities of the digital age, but refuses to engage in its implications, believing the BBC-ITV compact will continue in the future to provide the same kind of quality public service broadcasting we have enjoyed in the past. The second vision embraces the benefits that the digital age will bring consumers, but recognises that new funding arrangements are essential to ensure a new ‘Golden Age’ of public service broadcasting.

The Liberal Democrats have the opportunity to carve out a distinctive policy stance. By abolishing that regressive poll tax, the licence fee, which disproportionately hits the poor hardest, we can advance the cause of social justice; and by creating fairer market conditions in which all channels can compete equally for funding to make high quality programmes, we can advance the cause of public service broadcasting. It’s what’s called a win-win.

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