BBC licence fee to be abolished in 2027 and funding frozen

The BBC will have to make deep cuts to its programme budgets after the government said the broadcaster’s funding would be frozen for the next two years, with the licence fee abolished completely in 2027.

The culture secretary, Nadine Dorries, is expected to confirm that the cost of an annual licence, required to watch live television and access iPlayer services, will remain at £159 until 2024 before rising slightly for the following three years.

She said this would be the end of the current licence fee funding model for the BBC, raising doubts about the long-term financial future and editorial independence of the public service broadcaster under a Conservative government.

Dorries said: “This licence fee announcement will be the last. The days of the elderly being threatened with prison sentences and bailiffs knocking on doors are over. Time now to discuss and debate new ways of funding, supporting and selling great British content.”

The decision, confirmed by government sources, was briefed to the media as part of a range of measures designed to shore up public support for Boris Johnson after he has faced calls to resign as prime minister.

The BBC will have to negotiate with the government over an entirely new funding model when the final licence fee funding deal expires in 2027 – with potential options including a subscription service, part-privatisation, or direct government funding.

The Mail on Sunday quoted an ally of Dorries as saying: “There will be a lot of anguished noises about how it will hit popular programmes, but they can learn to cut waste like any other business. This will be the last BBC licence fee negotiation ever. Work will start next week on a mid-term review to replace the charter with a new funding formula.

“It’s over for the BBC as they know it.”

The source added that “the days of state-run TV are over” and praised the growth of US-run private sector companies such as Netflix and YouTube.

Although the BBC will continue to receive £3.2bn a year in licence fee income, the costs of making its programmes are increasing rapidly due to rising inflation and competition from the likes of Netflix. As a result, the corporation will have to make hundreds of millions of pounds in spending cuts in order to balance its books.

If the BBC had been allowed to increase the licence fee in line with inflation – currently at 5.1% – the annual cost would have risen to £167 in April.

The BBC has already made substantial cost savings behind the scenes, meaning the next round of cuts are likely to hit on-air services. As a result, the public should prepare for the BBC to provide less high-end drama and sports coverage, pad schedules with cheaper programmes, and potentially close some channels or services altogether. This could in turn erode support for the BBC if the public no longer feel they are receiving value for money from the licence fee.

The new licence fee deal will cover a five-year period to 2027, with the cost to the public likely to rise in the final three years – although this increase could also be at a below-inflation rate, meaning further cuts to BBC output could be required.

Dorries’ allies said there would be no further licence fee deal under a Johnson government and they would start negotiations on an entirely new funding model for the corporation. The BBC’s existence and ability to raise money is underpinned by a royal charter that expires at the end of 2027.

The BBC has already been preparing for the end of the licence fee, with proposals including a universal levy on broadband subscriptions or funding the broadcaster with a grant from general taxation – although this could undermine its editorial independence and leave it even more at the whim of government anger. Making the BBC a paid-for subscription service similar to Netflix is difficult due to the widespread popularity of broadcast radio and Freeview television services, which cannot be put behind a paywall.

Negotiations over the amount the BBC can charge for the licence fee have been ongoing for some time, with a final deal delayed by Dorries’ appointment in the autumn. The government has repeatedly criticised the corporation’s news output, claiming it is biased against the government and linking negative coverage of the prime minister to the licence fee negotiations.

The BBC has faced repeated deep real-terms spending cuts since the start of the Tory-Liberal Democrat coalition government in 2010, with the Conservatives forcing the broadcaster to pay for free licences for the over-75s – then blaming it when they took the benefit away.

A BBC source said of the licence fee proposals: “There has been similar speculation before. There are very good reasons for investing in what the BBC can do for the British public, and the creative industries and the UK around the world. Anything less than inflation would put unacceptable pressure on the BBC finances after years of cuts.”