The BBC licence fee could be means tested by household and linked to council tax rates, a report has suggested.
It also recommends a universal levy, with the Lords Communications and Digital Committee saying the model, in which each household would be required to pay a flat fee regardless of consumption, could provide the broadcaster with “predictable and sustainable levels of income”.
Linking the fee for each household to council tax and means testing it would make things fairer than the current model, the committee argued, and follows the method already used in Switzerland and Germany.
As well as the new fee model, the report urged the BBC to consider a hybrid option where public service broadcasting would be free to view, but other content such as high-end drama would be behind a paywall.
The report said the model would give audiences choice while ensuring the BBC’s core programming remains universally accessible, but warned there would be “significant commercial risk with no guarantee of success”.
Other options previously on the table, such as being funded by advertising or by Government grants, were dismissed as not being workable.
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A purely advertising-funded BBC is “highly unlikely to be viable” and would mean “a multi-billion pound reduction in income for the BBC whilst damaging the rest of the public service broadcasting sector”, which relies on advertising.
BBC programming may also need to scale back to refocus on core public service programming under a significantly reduced budget, the report added.
The committee dismissed a subscription service model similar to that of Amazon Prime Video or Apple TV+ because it would “generate insufficient income whilst introducing disproportionate barriers to access”.
It said the model would also undermine the BBC’s ability to deliver its services across the UK and come with various technical challenges.
Culture Secretary Nadine Dorries announced in January that the licence fee will be frozen at £159 for the next two years until April 2024 and that she wants to find a new funding model before the current deal expires in 2027 as it is “completely outdated”.
Chairwoman of the committee, Baroness Stowell of Beeston, said: “The real danger is if the BBC doesn’t seize this opportunity to reform and demonstrate why it’s of value to audiences in this new world of endless choice.
“That’s why the committee concluded that, when it comes to what the BBC does, the status quo is not an option."
A BBC spokesperson said: “We welcome the Lord’s report. We agree we need to keep reforming which is what we have been doing at pace.
“Clearly the BBC needs to keep relevant and we welcome the report’s finding that a market failure BBC wouldn’t be a good outcome.
“Beyond that, we are open minded about the future and it is right there is a debate on whether the licence fee needs to evolve and if so, what comes next.”