The BBC has seen a fall in funding from the television licence, which is subject to review. The National Audit Office has warned the BBC that it needs to develop a clear financial plan for the future. The government has consulted on decriminalisation of non-payment of the television licence. It remains concerned that a criminal sanction is increasingly disproportionate and unfair in a modern public service broadcasting system. However, it wants to ensure that any future changes to the enforcement scheme are not seen as an invitation to evade the legal requirement to have a licence to watch television programmes.

The BBC is largely funded by annual television licence fees, which cost £157.50 per household.

Negotiations with government about the future funding from the licence fee began in November 2020 and its charter will be subject to a mid-term review between 2022 and 2024.

A government consultation on decriminalisation of non-payment of the television licence received more than 150,000 responses from individuals, campaigners and stakeholders.

Opinion was split among individual respondents, with 48% advocating decriminalisation and 52% in favour of criminal sanctions.

Responses from organised campaigns accounted for three quarters of the responses, with 83% saying they were against decriminalisation.

Plans for decriminalisation will be considered alongside the licence fee settlement negotiations that began in November. The negotiations will set the level of the licence free for a period of at least five years from 2022 and will provide the context within which any future decision on decriminalisation will be taken.

The culture secretary, Oliver Dowden, said: “A criminal sanction for TV licence evasion in the digital media age feels outdated and wrong, and many who responded to our consultation agreed. Whilst the delivery of decriminalisation right now is problematic, we intend to keep looking at this as we negotiate the next licence fee settlement and push for the reforms at the BBC that the new leadership has recognised are needed.”

In the year 2019-2020, TV Licensing reported 174,000 people watching television without a licence. The licence evasion rate is estimated to be between 6.5% and 7.5%.

91 people were given custodial sentences for failing to pay fines for non-payment of a television licence between 2015 and 2018, although as at the end of June 2020 there were none in prison.

The BBC received £3.5 billion in licence fee revenue in the financial year 2019-2020. It generated just £208 million in financial returns from commercial activities and spent £119 million more than it received in total income.

The BBC faces significant challenges to its income, according to a report from the National Audit Office. That is partly due to a fall in the number of people buying television licences as a result of changing viewing habits.

Over the last decade, the BBC has seen a real-term reduction in revenue of around 30%, largely through the freezing of the licence fee for six years. More recently it has had to address the phased withdrawal of government funding for free licences for those aged over 75.

“The BBC faces significant financial challenges as it embarks upon licence fee negotiations and its mid-term charter review. It has made significant cost savings and has identified the need for more with licence fee income under pressure,” said Gareth Davies, the head of the NAO. “As decisions about the licence fee are made, the BBC needs to develop a clear financial plan for the future setting out where it will invest and how it will continue to make savings. Without such a plan, it will be difficult for the BBC to effectively implement its new strategic priorities.”

The National Audit Office concludes that the BBC will need to continue to make savings while investing in new technology and addressing an underlying lack of pace when implementing change. More immediately, as the BBC enters into licence fee negotiations, it needs to be able to articulate its current wider value to the UK economy.