The BBC could lose over £600 million a year in government funding of television licences for those aged over 75. Now there is a suggestion that it could make up some of the shortfall by bringing online services like the BBC iPlayer within the scope of the television licence. How far this will address the longer term funding of the BBC remains unclear.

A television licence for a home in the United Kingdom costs £145.50 per year and is legally required in order to watch or record programmes at the time they are broadcast. If anyone in the household is aged over 75 they can apply for a free licence for their main home address, whatever their means. This will cover anyone else living there, whatever their age.

Many might assume that this is an exemption. In fact the cost is paid directly by the government to the BBC. The cost is met by the Department for Work and Pensions out of general taxation.

The Sunday Times reports that the BBC will have to take on the cost of 4.5 million television licences for those aged over 75 at a potential cost of over £650 million.

In return, it says the corporation will be able to charge for the use of the BBC iPlayer and other online catch-up services.

The paper reports that discussions about the free television licences involving the chancellor George Osborne, the director general of the BBC and senior figures in the pensions and culture departments suggest an announcement in the forthcoming summer budget. It says the plans were confirmed by four separate sources familiar with the negotiations.

Ultimately the chancellor can decide whether the government will continue to pay for television licences for all those aged over 75. The report suggests that the free television licence will remain until 2020, honouring a commitment in the conservative election manifesto.

This universal subsidy was introduced by the labour government in 2000. At the time it was projected to cost £300 million a year to pay for a television licence for the 3 million households with someone aged over 75.

This government grant is an anomaly, given that one of the justifications claimed by the BBC for the television licence is to maintain political independence from the government.

Yet the BBC has apparently been happy to receive up to £600 million a year from direct taxation from this universal benefit. By 2020 government figures forecast there will be approaching 5 million people able to claim the benefit, at a cost of £774 million a year.

The loss of such a sum would leave a significant hole in the £3.7 billion annual budget of the BBC public services. It represents almost a fifth of its public funding. That is more than the entire budget for the BBC Two, Three and Four television channels.

The BBC is attempting to demonstrate prudence by promising to take BBC Three off air as an online only service to save £30 million a year and to shed 1,000 jobs to cut a further £50 million.

The suggestion is that the BBC will be able to make up some of the shortfall by charging for use of the BBC iPlayer. It is said that this could produce annual revenues of at least £150 million. That appears rather unrealistic.

£150 million is the figure the BBC claims it is losing in television licence fee revenue as a result of less people paying. It said “This is because as more people use iPlayer, mobiles and online catch-up, the number of households owning televisions is falling. It also provides further evidence of the need for the licence fee to be modernised to cover digital services.”

BARB estimates that 1.72 million households in the United Kingdom do not have a television set. The number of homes without a television has fallen by 440,000 since its peak at the end of 2013.

The BBC does not report the number of unique users to the BBC iPlayer, preferring to talk in terms of 276 million requests for television programmes in May 2015. That sounds like a lot but it only represents a couple of per cent of all viewing of BBC television.

We estimate that around 5 million users in the United Kingdom access television programmes through the BBC iPlayer, out of a population of 58 million individuals aged over 4, or around 26 million television homes.

How many of those 5 million viewers would pay to use the BBC iPlayer and how much would they be prepared to spend? The majority of them already pay for the programmes through the television licence. Are those that are not covered by a television licence likely to get one in order to use the BBC iPlayer or similar services?

Given the experience of other digital media pay walls, the number likely to pay is a small proportion of those currently using the service. Even if it were required by law, the problem of enforcement is significant.

It is difficult to see how bringing online services within the scope of the television licence represents a solution to the long-term funding of the BBC. Even charging directly for online services would be challenging.

There are plans for a BBC Store to enable people to pay to download programmes but this is unlikely to make a meaningful contribution to the overall cost of the BBC.