In the run-up to the renewal of the BBC charter in January 2028, the corporation is facing perhaps its greatest ever funding crisis. It is staring down cost hyper-inflation across most programme genres and, unlike online-only streamers such as Netflix, it will still have to fund traditional broadcast networks until at least 2034. And of course, it will also have to pay for new digital services to keep pace with trends, especially among younger audiences.
Author
- Patrick Barwise
Emeritus Professor of Management and Marketing, London Business School
But the biggest driver of the BBC crisis is the cut in real-terms funding for its national, regional and local UK services. These are the services that largely account for licence payers’ willingness to pay the fee.
The reduction in the real-terms funding of these services has been building up since 2010 and is now deeper than most people realise.
In 2010-11, TV licence fee revenue was £3.1 billion . The cost of collecting the licence fee was £124 million . The BBC also received £579 million of government funding from the Department for Work and Pensions for free TV licences for the over-75s.
So the total public funding from licence fees, after collection costs, and the DWP payment, was £3.5 billion . But not all of this went to the BBC: £80 million was “top-sliced” (or diverted) to meet the final costs of switching from analogue to digital TV.
By 2025-26, licence fee income had grown to £3.9 billion . But government support for free TV licences had been phased out and top-slicing increased to £293 million to fund the BBC World Service, BBC Monitoring (a division of the World Service), and the Local Democracy Reporting Service. The BBC was also partially funding the Welsh language TV channel S4C. That left the net public funding of its UK services at around £3.4 billion.
Enter inflation
But between 2010 and 2025, the cumulative effect of inflation was 55.4%. This equates to a real-terms cut to public funding for the UK services of £2 billion per year – or put another way, a 37% drop in income.
Based on media coverage , you might think that the main reason for the BBC’s reduced income is that fewer people are paying the licence fee. But in reality, the 37% real-terms reduction was mainly driven by three other things.
First, successive governments were salami-slicing the value of the licence fee – in other words, repeated below-inflation settlements ate away at its value over time. Second, they withdrew government funding for free TV licences. Third, they more than doubled top-slicing in real terms, from £124 million to £293 million.
How BBC funding has fallen (figures in millions of pounds)
It’s true though that increases in licence fee evasion, from 5.2% in 2010-11 to 11.8% in 2025-26 , played a part, as did the number of “no licence needed” households claiming that they did not need a TV licence because they “watch TV only on demand” but “never watch the BBC iPlayer”.
To put this into context, in 2015 99% of UK households used the BBC’s services in a single week. The figure may now be “only” 97% or 98%. But the idea that a large number are forced to pay without getting any direct benefit over a whole year seems implausible.
Many, however, take the BBC for granted – until they’re deprived of it. A study in 2022 found that after nine days without it, 70% of those who’d said it was poor value changed their minds .
To mitigate the cuts, the BBC has made continuous efficiency savings over the 15 years, reducing overhead costs, cutting staff and budgets, and squeezing suppliers. But, according to the National Audit Office, it now faces diminishing returns from these savings and most future cost-cutting will have to come from axed programmes, lower budgets and a reduction in the number of TV channels and radio stations. The axing of long-running Radio 4 consumer show You and Yours – along with other casualties – is a case in point.
The BBC also faces diminishing returns from commercial income, largely raised overseas from programme sales and format licences. With less investment in original content, quite simply the BBC now has less to sell.
The government says it wants to ensure sustainable BBC funding under the next charter. Achieving that will require updating or replacing the licence fee funding model, widening the payment base and bringing it closer to the BBC’s near-universal household usage. The financial stakes are surprisingly low: the £180 licence fee (with easy payment options) is equivalent to just £3.45 per week.
Limited, well-targeted exemptions for households for whom this is still a significant burden should be easily affordable, either for the government or for a properly funded BBC – even in the current fiscal situation. But as always, any policy that ends – or even reverses – the salami-slicing of BBC funding will be strongly opposed by its critics.
