Why the licence fee isn’t the best way to fund the BBC

As the discussion regarding the future of the BBC licence fee rumbles on ahead of the 2016 Charter Review, the BBC’s Director of Policy James Heath has helpfully laid out in two separate blog posts why he believes the licence fee is the best way of funding the Beeb, and why subscription is not. It is interesting that the BBC is using its resources, provided by the licence fee, to defend its own position. But this would come as little surprise to those who understand how rent-seeking operates.

In making his case, Heath suggests that he welcomes debate on this subject. He then begins the first article by using the old trick of defining that debate in his own terms. ‘What the BBC is for and how it should be funded are inextricably linked’, he says. Too true. But what he thinks the BBC exists for is taken as a given: ‘universality and social value, great programmes at an affordable price, creative sector investment, and independence.’ Hence, in James’s view, all funding mechanisms for the Beeb must be judged against these criteria.

I’m sorry, but this won’t do. Those of us who do not believe in the licence fee of course recognise that the role of the BBC and how it should be funded are linked. But where we fundamentally disagree with James is on the role of the BBC in a modern economy and society.

Indeed, one of the key arguments against a sustained role for a licence fee is that we find ourselves in a very different world from the early post-war period when an annual tax-like TV licence for a monopoly public service broadcaster made sense. TV broadcasting then had the features of what economists call a public good – it was non-rivalrous and non-excludable. Since signals were transmitted free-to-air via masts, one person watching the BBC didn’t affect the ability of others to do so. And it was hard to prevent someone from tuning in. So it made sense to create a separate funding stream to preserve BBC independence in a universal way for all those owning televisions, given the potential for free-riding and as a means of guaranteeing revenues for the state-owned monopoly.

Then, the licence fee could genuinely be described as the ‘least worst’ option for funding a monopoly public service broadcaster. Yet since then so much has changed. Broadcast media is now more diverse – a raft of commercial operators have shown it is possible to survive and thrive without recourse to a compulsory imposed charge. In other words, the BBC is no longer a monopoly. Many of the commercial rivals produce content indistinguishable from the sorts of programmes the BBC seeks to produce: from news to documentaries, dramas, sports coverage through to festival coverage. What’s more, technology has rendered the public good argument obsolete – one can exclude people from watching if they do not pay, through digital decoders. In other words, broadcasting has become a ‘club good’. People can be excluded from its services and different organisations can provide different bundles of services which we can choose to purchase or not.

Given all these changed conditions then, my starting point is not: ‘what is the best means of funding the BBC given its current remit?’ but rather ‘Is there any remaining justification for a “universal” public service broadcaster at all?’ Given the existence and success of other commercial operators, and the easy availability of news and current affairs information elsewhere, it is difficult to answer in the affirmative. Indeed, to think about this more clearly: if the BBC did not already exist, would anyone today seriously suggest creating it? Or, if they did, would they seriously suggest the need for the sort of ‘universal’ service the BBC provides?

Heath argues that the BBC operates for ‘the common good’, ‘creating a richer culture, promoting democratic debate and building a stronger sense of community through shared experiences’ which are ‘universally available to all’. But this is increasingly challengeable. The BBC model is a reflection of a bygone collectivist age, where the population had endured the collective effort of World War II and when there was a fairly homogenous society. In a more diverse age – in particular where other sources of information are easily available, it's more a source of conflict than a unifier.

Everybody believes the BBC is biased against them (see Gaza coverage, the debates over welfare reform, discussion of the EU etc). We would never complain that the Guardian is biased because we know its broad worldview and can judge what it says against that. The BBC on the other hand has to labour under the pretence of impartiality, when in fact all editorial decisions of what to cover and how to cover it entail partial judgments.

Any sense of community that the Beeb does engender is not natural and spontaneous, but enforced. The BBC’s output is only universal to those who do watch television because the licence fee that funds it is compulsory, with (until new proposed legislation is passed) criminal charges resulting for those found to have watched television without having purchased one.

On content too, the ‘common good’ social capital argument is a bit thin. Given the plethora of channels available on most digital boxes and the ability to watch on-demand, the idea of ‘shared experiences’ as a form of social or cultural capital – the idea that we all sit around at the same time to watch the same shows and then perhaps discuss them all together – is looking increasingly obsolete. In this regard, the idea that this universality is ‘socially just’ looks more like just a desperate plea. In fact, Heath’s logic would suggest that rather than subsidising the BBC the government should subsidise programmes like ‘Game of Thrones’ – the real ‘watercooler conversation generator of the moment, which could be said to be contributing to social capital building. That it doesn’t shows that social capital building and ‘shared experience’ can arise from market-based activity already. Let’s call it the ‘blockbuster phenomenon’.

No, the only real justification for the maintenance of a public service broadcaster would be to show that the BBC provides things which other market operators could not or would not. Beyond children’s television (which has been killed off on commercial stations by advertising regulation), and perhaps a handful of news and current affairs programmes, it is difficult to think of many examples where this is the case. In fact, in many areas the BBC uses its privileged position of guaranteed revenues to directly compete in areas where commercial provision works and works well, from bidding to show movies and sports programmes, to cross-subsidising its news website and the provision of local news in direct competition with increasingly hard-pressed local newspapers. There is no real mechanism for consumers to hold the BBC to account for the quality and content of its output and it is undermining other organisations that also contribute to the building up of social capital.

So, even if one accepts the need for public service broadcasting (and I am not convinced) for the provision of programmes that otherwise would not be produced by the wider broadcast market, it is difficult to justify anything more than a radically smaller BBC – perhaps one television channel and one national radio station. This would justify a very low licence fee, ring-fenced from the subscription or advertising revenue that the BBC would have to raise for anything else which it wanted to continue doing. In fact, one could argue that there is no reason to allow the BBC even to have a monopoly over this content either – one could envisage a situation where funding is distributed for public service broadcasts to commercial operators on a competitive basis in the same way that the Arts Council operates its subsidies. But there is very little argument for a public service broadcaster, and hence a licence fee, to fund the all-singing, all-dancing BBC that we see today.

Nevertheless, Heath does try. He dismisses the argument that technology is rendering the licence fee obsolete anyway by saying that we should be wary of technological determinism. But this just dodges the questions posed. The key insight that the likes of Professor Tim Congdon have consistently made is that computers, tablets and now even mobile phones are televisions, in that people can use them to watch television content. Should we really be seriously considering extending the TV tax to all of these devices, at a time when we are trying to embrace a digital age, so that someone can’t watch ITV online without having first paid his dues to the BBC? And if not, and if we are instead discussing the potential for a log-in or password based system for catch-up services and non-TV viewed TV, then why can’t that system be used on a subscription basis? Heath does not address these important questions.

Instead, Heath uses four further and ‘softer’ justifications for the licence fee: that it is a ‘shared investment’, that the licence fee provides incentives to serve the needs of everyone and invest in new content, that it makes the BBC accountable to viewers, and that it is efficient and does not neuter consumer choice.

The BBC is a shared investment in the sense that we are all forced to pay for it, irrespective of whether we want it. Heath argues that this makes it a form of mutual security, like healthcare. Whatever one’s views on the NHS, it is self-evident that one can envisage situations where you might suffer an unexpected event that requires medical treatment, which, if you haven’t pre-insured or got an NHS in place, might mean prohibitively high costs and potential catastrophe. Insurance makes sense. If in the unexpected event someone who previously didn’t want to watch the BBC now did so, the cost of subscription is unlikely to be prohibitively high or unpredictable. So, what exactly is the BBC licence fee providing us with mutual security against?

Instead the socialised, collective provision model of the BBC necessitates it providing different content to try to appease all of its potential viewers, in order to justify its own position. Heath argues that this is a good thing – a ‘democratic incentive to engage with and reflect the needs of every not just a few’. Yet it’s unclear why all this cross-subsidy is necessary. I like sport. I would much rather have a much lower licence fee charge each year and be able to use the money saved to purchase BT Sport and ESPN to supplement my Sky Sports package. Lionel Robbins once described capitalist competition as the process by which ‘thousands of people cast their votes for the hundreds of products and services on offer, and from the competition to win their votes, better and better products and services arise.’ In that sense, a free market in broadcasting would be truly democratic and the BBC licence fee is a roadblock to achieving this. There is nothing democratic about someone in the BBC deciding what to produce divorced from the wants and needs of customers – and it is vastly economically inefficient. In modern broadcasting, it is simply not necessary for one broadcaster to provide a full range of services, any more than it is necessary for this one blog to cover every issue from economics to basket weaving.

The BBC licence fee as guaranteed income means the Beeb cannot ever be truly accountable to its viewers in the way that a commercial enterprise generating its own revenue would be. This is not only true in terms of the types of programmes the BBC produces, but also how it spends its money. Heath likes to talk about this lack of constraint as enabling the BBC to look beyond what people want and to act as a vehicle for ‘risk capital’ for the British creative sector. He highlights the fact that ‘over 40% of total investment in UK original content’ comes from them. Yet industrial subsidies of this kind have long been recognised by economists as deeply perverse, driving up costs and leading to content tailored to the demands of the middlemen of the BBC rather than customers themselves. Sure, with the amount of money involved the BBC may produce some good content along the way. But what we don’t see is the crowding out, the money that would have been invested elsewhere, by the BBC or other commercial companies, in the television or indeed other goods and services that we as consumers desire.

Heath argues that the BBC licence fee doesn’t neuter consumer choice. We’d only really know this, of course, were it to be abolished. If Heath were right, we’d expect the vast majority of people to continue to pay the subscription charge and so the BBC would have little to fear. The fact that the Beeb is evidently so concerned about the possibility of the licence fee being scrapped suggests, however, that this is not the case. Yet if there are many people who would not pay a BBC subscription charge in the event of the licence fee being abolished, this alone shows that its prior existence did indeed have a big impact on consumer choice.

The licence fee does of course allow the BBC to be ‘independent’ from government – though this is true only in a superficial sense - but this would be equally true under a subscription model. And the public are increasingly coming round to this idea. Heath cites polling from Ipsos MORI to show that people apparently support the licence fee. But a recent poll by the Whitehouse Consultancy media analysts found 51 per cent would support the idea of abolishing the licence fee and making the BBC fund itself. The answers to this type of survey question tend to be dependent on the wording.

I certainly agree with Heath that the argument about the regressivity of the licence fee is perhaps the weakest argument against it. The real unfairness of it is not that it costs poorer people a higher proportion of their incomes, it’s that there is absolutely no link between the amount you pay and the amount of BBC you are willing to pay for the option to watch - to the extent that you have to pay even if you want to watch no BBC television. This final point may not affect many people, but it seems to me an utterly indefensible principle.

In conclusion then, the arguments in favour of the licence fee are weak – not just because of technology and the changing media market, but also because the justification for the BBC’s existence as a ‘do-all’ public service broadcaster is itself outdated. One can sense that the tide is beginning to turn on this issue, and the Beeb will have to come up with better arguments if the licence fee is to survive beyond the medium-term.

Something else I've been wondering about is the cost to the taxpayer of maintaining the BBC as first choice in the Electronic TV guide on every TV in the land. Currently the first several options in the TV, radio & HD section of the EPG from which viewers select programmes is always a BBC channel. Naturally this gives them an advantage - the first listing in any menu always gets an advantage (see Google where companies pay to get top rankings) - any commercial organisation would love to be top of the list of options and would pay handsomely for it.
Agreed, Anonymous. There was lots of evidence in the Nudge book that there's a high degree of inertia in terms of people being unwilling to move away from the 'default options'. I imagine that lots of people start browsing programmes to watch with the BBC channels, meaning that they are likely to benefit strongly from this effect.
I do think there is a role for a public service broadcaster which is funded by a mandatory license fee, but I also think that the scope of the services funded by the license fee should be strictly limited. In my view, a license fee funded public service broadcaster should exist for one primary reason - to be able to provide public service announcements issued by the government in the event of war, civil disturbance, or natural disaster that seriously impacts the country's infrastructure. Although such announcements could be delivered by commercial broadcasters, it would be incumbent upon the public service broadcaster to maintain a broadcasting capability that could be deployed when commercial broadcasting networks might be beyond practical use. The license-funded BBC was and probably is the logical provider of this. As a secondary service, the public service broadcaster could provide UK and world news, along with educational programs such as proper documentaries, quality children's programming, Open University programming, etc. News would be bought from the many reputable news agencies, and not obtained by sending teams of people all over the world. There would be no justification for the license fee funded public service broadcaster to be involved with light entertainment programming, sports programming, or digital media delivery. I believe that compared to what they do now, and what they should be doing as a public service broadcaster as defined above, the BBC license tax would probably cost no more than £20 per year, and I would be happy to pay that amount.
The licence fee use to fund 2 BBC TV channels and 5 national radio stations. This has ballooned to at least 9 TV stations and 12 national radio stations, plus online and a few international ones to boot. Im not sure how the BBC justifies so much programming that one person alone or family could not consume. I concur with the above comments, that there is an argument for a basic tax funded service for less than £30 a year, which might take the BBC back to basics. Lets be honest, we had better quality TV when the BBC only had 2 national telly channels.
Most evenings I look at the BBC listings and am lucky if there is one programme I want to watch, but I do always watch the 10pm news. In every bulletin however we have to watch the reporters standing outside a dark building to give their report - last night you could just read the Foreign Office sign as someone told us there were no new developments with the plane crash. Why do we pay for this? A few months ago Huw Edwards decamped overseas to be filmed on his hotel balcony each night with the same neon sign over his shoulder. Does anyone at the BBC ever consider this as wasteful or just contemplate our bottomless pockets.
I do not pay anything towards the bbc... in fact I regret now being forced under criminal law to pay in the past... it is a form of commercial fraud. I see no need for the bbc or any imposed license/TAX fee... there are many commercial organisations that provide all the services that are currently taxed on and funded by the public whether they watch them or not. I know many who have no interest in the sport coverage that the bbc wastes millions on or on the daily soaps that reflect what some anon. editor deems as necessary. If the bbc was as valuable as it claims then let it fund itself by the same method that Sky has successfully used given that the bbc has recently wasted a £100 million of tax funds on a failed digital add on. The quicker this out of touch backward looking gravy train service folds will show the world that the UK has finally moved on.
Those in favour of Extortion funded entertainment are just asking someone else to fund their lifestyle.
I'm not convinced that the BBC was necessary in the 1930s - the USA never had a public broadcaster, advertising worked there as it has done here. It was wrong then, let alone now!
Evident that Heath argues from the position of a privileged communist, ie one of those dictating to the proletariat. Would that not be a source of bias? The matter of trust is crucial - trust in reporting others' words without twisting them, or broadcasting selectively cobbled edited versions, crucial ommissions, or simply denying voices they don't like access. This could be fixed by implementing a Netherlands model of broadcasting? But what on earth is the BBC doing on the internet? Is that a trojan horse for an internet tax?
The BBC is required to defend its position in the run-up to its Charter review; it’s part of its remit. It’s no more interesting or uninteresting than any company seeking to explain why it succeeds. Of course, being an IEA article, you’d rather this was argue from commercially-funded means. This belief, that the means of funding is more important than the ends – ironically – means your own article uses the ‘trick’ of arguing against the debate in your own terms. It’s for this reason that you completely fail to attack the non-market argument Heath posits – namely, that no two programmes can be compared as ‘products’ like any other market-based system. It’s another argument whether public/cultural 'goods and market forces are mutually beneficial – but that’s not a starting point for your article (naturally). It’s not actually arguable, while the BBC exists, to state that commercial operators survive and thrive when the Beeb provides much of the production sectors' training and an artificially-imposed ‘benchmark’ for investment which other broadcasters compete against. Most of the independent companies that supply other channels were built by BBC-trained producers. Britain has a reputation the world over for television - and we export more TV formats and factual output than any other nation. Why is this? Lots of other countries could do so - but why the UK? Because the licence fee provides a stimulus that bolsters the entire market. Without the forced investment of the licence fee – it’s probable that American content would become more prevalent on our screens; the US is a much bigger market and it’s cheaper for broadcasters to acquire these programmes than to make their own. After all, this is how Sky succeeded. The fact Sky currently makes its own programmes is a case in point. It was effectively persuaded to do so because most surveys state British audiences want indigenous programming. They are used to this because we have a public service broadcaster that provides the market with a high-level of home-grown output. Again, look to any other country in the world and why are they not producing so much indigenous content? We cannot know for sure that current levels of British-made content would remain at the same level without the artificial stimulus of the licence fee. You have mentioned technology allows people to be excluded who don’t want to pay. Accepting your argument that the BBC’s aim (to broadcast to all citizens and serve them as such ‘free at the point of use) is irrelevant in the modern age, you’d still be requiring people to invest in technology they may not possess. After all, most TV viewing in the UK is free-to-air, through non-decoding Freeview boxes or TVs. And – again – arguments against the licence fee always fail to mention radio – a sizeable chunk of what the BBC is for; how do you exclude non-subscribers from accessing radio? You suggest that the BBC does not aim programmes or services at customers, but this ignores the BBC’s own audiences department which solely focuses on what various audiences ‘want’ or would like – and, as a programme maker myself, the BBC is no different to any other broadcaster in this sense. Of course, it *is* different in terms of how much risk it can take (in terms of genre or topic) and it has the ability to appeal to niche audiences not served by (even) Channel 4 any longer. The ‘risk capital’ is real – why did the BBC manage to invent and make iPlayer work before Sky? Sky actually has higher revenues than the BBC so this wasn’t an instance of the BBC crowding out market players. Instead, this was an advantage of its guaranteed funding and its ability to be less risk averse. Audiences wanted to watch television in this way – and yet no commercial provider had made it work. Now they've all copied this service - but they didn't start it. You miss the point about subscription charges – the BBC fears this not because people would necessarily stop paying, but because it fundamentally changes the nature of what it’s for – but, you’ve already stated you don’t agree with its purpose. In a world of choice, we have subscription-funded services already – several in fact. The BBC operates a different model in a mixed-funded broadcast market. I'm not going to defend people going to prison who don't pay the licence fee because I can't. And I can't argue the BBC should be producing entertainment or its more commercial output. But, I could argue that it still serves audiences which commercial players ignore. Accepting the ‘tax’ is regressive, its best defence is the maintenance of quality and innovation through risk-taking owing to its guaranteed funding – and, more than this, continuing to bolster the British production sector to compete globally, while maintaining a high benchmark of home-grown output.
Interesting that Media Gaucho speaks so highly of BBC trained staff. Remind me, which BBC staff worked on Game of thrones, The Sopranos, 24, The Walking Dead or Breaking Bad? Is it approaching zero? The BBC is an incredible drag on the quality of UK broadcasting, the quicker it dies the better
All of this is beside the point. For all the Conservative-baiting the BBC engages in, the British people (including many Conservative voters) rather like it and our Prime Minister and his followers have ably demonstrated they lack the will power to engage in any argument from a position of conviction. The most radical reform would be a switch to direct tax-payer funding. Sadly, organisations like the IEA, no longer represent Conservative thinking and your arguments, no matter how convincing, fall on deaf ears in Number 10. Who poked Conservatives in the eye, by inserting Lord Patten at the BBC Trust, and now favours either Diana Coyle or the Cameroon Lord Coe (Osborne favourite, too), as his replacement? It doesn't seem worthwhile to hope for radical change, does it? Also, don't forget that Dave needs as many eyes and ears tuned to the BBC's europhilia, in the run-up to the EU referendum, so any fundamental change in the BBC's cosy arrangement is unlikely. I doubt that the BBC's defence of the poll tax is a result of fear for its future, but rather the provision of arguments for its supporters, in the likely heated pre-Licence-Fee-renewal years. The Right has lost.
RE: Anonymous on Fri, 18/07/2014 - 12:05. All the public service broadcasters (BBC, ITV, Channel 4, Channel 5) are 'gifted' the high EPG slots for free in return for certain public service obligations imposed by the regulator, OfCom - i.e. regional programming, current affairs and news. As such, commercially-funded broadcasters also potentially benefit from these prominent slots.
Which sector has a long long record of low productivity improvements? The public sector. This is hardly surprising because its ethos is to spend all money allocated to it and then ask for an increase on top each year. There can be no better way of guaranteeing low productivity with unjustifiably high salaries for top staff awarded by themselves. There is not the slightest element of competition. The public has changed to today have more classes races etc so there is no longer a broad church the BBC can appeal too. Like every other part of the public sector the BBC has become stuffed with left liberal staff because a cost plus high salary low performance public body makes an attractive home. The UK future is that there will be ever decreasing sums of money due to an ageing declining workforce combined with massive and ever rising unfunded liabilities from the rising numbers of the old. The BBC is one on many public sector bodies that are a blast from the past. Sorry the late twentieth century is not going to return. The public sector will be forced to become more productive, much against its wishes and in part because there will not be as many people in future to staff it. Left liberals prefer to live in the past because they cannot engage with a reality where money will have to be stretched further and further and cuts are inevitable in the longer term. The approach is to pretend the problem does not exist and hope it will go away. It won't because it is a systemic problem that will get worse and worse for many future decades
@Media Gaucho All except the BBC are commercial broadcasters who have certain public service commitments imposed upon them as part of their broadcasting license, for which they pay handsomely. The BBC exists by Royal Charter specifically as a public service broadcaster, and as such should only use taxation funds (ie: the license fee) to provide true public service programming. If they want to provide other programming such as sport, light entertainment, digital media, etc. then they should fund this commercially via advertising, or via sales through BBC Wroldwide, and compete in those arenas as a commercial broadcaster, just like the others have to.
@mediagaucho - it is simply untrue that Ryan is arguing this from a commercial point of view. The issue of whether broadcasting is a club good or a public good is asked together with the question of how public service broadcasting should be funded if it is to be publicly funded. These are important economic issues that need serious attention.
RE: EPG slots: it's only recently that Sky stopped charging the BBC anything up to £9 million a year for their slots. Slots are a significant part of Sky's funding and smaller channels have in the past claimed to have been virtually driven to the wall by the cost and Sky's intransigence. The BBC/ITV/C4/C5 negotiations went on for years and a company without such corporate heft had no option but to pay up. It'll be interesting to see if Elisabeth Murdoch's company Shine TV (makers of Masterchef) changes direction now that they've employed the BBC Commissioner Tanya Shaw as their Creative Director. Looking at her credits, probably not. I'd be happy to see the BBC shrunk but to argue it in Manichean terms is to misunderstand the broader industry. Any system would be perfect if only it didn't need people to operate it. I've worked in both the private and the public sectors and have seen brilliance and catastrophe in both. The only commonality is the immense effort that both 'sides' put into concealing their more monumental cock-ups.
I do not agree with the licence fee for all the reasons previous contributors have stated plus one: there is a culture of an incumbent job-for-life mentality and reality from engineers, technicians, presenters, "stars" etc. Independent channels work on the premise that you come in, do your show, collect your cheque and you're out the door until the next one. Not so at the beeb, once you're in, you're in. Viz the Dimblebys. Office space was provided at the Beeb,probably still is. It may also explain why so many perverts had such a strangle hold for so long, aided as they were, by the veneer of respectability as a publicly funded broadcaster, which shielded those doing wrong for so long.

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