A licence to kill?

The Tories, at war with the BBC, have signed up the former Channel 5 boss David Elstein to look into the corporation's funding. But he won't be swayed by Iain Duncan Smith, he tells Vincent Graff

David Elstein likes to keep up with modern political fashions. The former chief executive of Channel 5 grins, then turns mock-solemn when I ask him what progress he has made so far with the latest project. "We've written a road-map," he says. "Very popular."

Elstein, never much of a diplomat, has been spared the Middle East peace process, but his own venture is not without its local difficulties. He has been drafted in by the Conservative Party to carry out an "independent review" of the future of the BBC and the television licence fee. His group will present its findings within six months.

Elstein, who has voted "communist, independent, Labour, Social Democrat, Liberal Democrat, Liberal and Conservative", stresses that his team comes with no pre-conceived ideas, and that the Tories will hold no sway over its deliberations.

"What the Conservative Party thinks, and thinks in the future, is none of my business. It is irrelevant to our consideration."

That may be lucky, given that Conservative front-benchers have recently left no one in any doubt about what they think of the BBC. Iain Duncan Smith compiled a dossier of complaints, complaining that his party is treated like a joke by the corporation. Bernard Jenkins called the BBC "a nationalised industry... threatened by change" .

Most pertinent, the shadow Culture Secretary, John Whittingdale, whose job it will be to draw up Tory policy (and to whom Elstein will report), says: "At the very least, I expect a significant reduction in the licence fee... I find it difficult to see why it's necessary for the BBC... to impose a poll tax of £116 on every household."

So Whittingdale would not have come knocking on Elstein's door if he thought the former television executive was a fan of the licence fee. And, indeed, Elstein admits that he has been talking for 20 years about how the compulsory charge should be scrapped.

"My views on the licence fee have always been that it's likely to be replaced by subscription, and ought to be, at some point in the future," he says.

Throughout our conversation he returns to the theme - the licence fee "is clearly too high", people pay it "through gritted teeth", "the poll tax was fairer" - but he insists that his group is coming to its task free from preconceptions.

"There are seven people on the group and I don't even know the views of two or three of them. There is nothing to stop us saying the licence fee is the worst of all methods of funding the BBC except for all the others." Listening to him chewing over the arguments, that seems a very remote prospect. For example, he says, even if we accept - as he seems to - that the market will not provide certain types of (up-market, low-audience) television programming and that the state ought to finance such material, why should it do so through a separate organisation?

"What proportion of BBC programmes would never be provided by the market? 10 per cent? 15 per cent? So we are spending with the BBC £2.6bn a year to get £400m-worth of value. Why do we do that? Why do you need to tax people to pay for programmes that were always going to be made in order to pay for other programmes? Why not just pay for those other programmes, and hand them out for free to Channel 4, ITV, Channel 5 and whatever replaces BBC1 and BBC2? Make your own calculation. Of course it is realistic. Why would you hand all the money for public-service programming to one provider? Doesn't that invite inefficiency?"

He also has a problem with the regressive nature of the licence fee. If we are to finance the BBC, how much better, he ponders, to pay for it out of general taxation. This would also save in collection costs, which swallow up about 5 per cent of revenue, and money lost through evasion (a further 8 per cent).

But if the BBC becomes reliant on Gordon Brown choosing to write a cheque every year, won't it lose its independence? It becomes hard to imagine, I suggest, a director-general picking a fight with a ruling party if the BBC's cash flow depends so directly on those same politicians.

The current "arm's-length" principle is a myth, says Elstein, since politicians set the rate of the licence fee, and are free to cut it. And in any case, does anyone question the impartiality of the BBC World Service, which is funded directly by the Foreign Office? "Suddenly the BBC, because it is funded out of taxation, will collapse into a pro-government organisation? We have got 70 years' experience with the World Service that that doesn't happen."

His critics point out that the World Service does not dissect UK policy day in, day out. He is more trusting - public opinion would not let the Chancellor censor broadcasters. "It's a close-run argument," he finally admits. But we should not rule the idea out as unthinkable, particularly as 15 per cent of the fee already comes from the Treasury - in the form of free licences for the over-75s.

Elstein sees the end game, 20 years' hence, when every TV set in every household has a digital connection. If you want BBC1, you pay for it. If you don't pay, you don't get. "At that point the licence fee becomes completely pointless. Why would you have an army of vans going around the country and 24 million pieces of paper every year when you can just disable people's signals if you don't pay for the content?

"Bear in mind we had a subscription for the first 33 years of the BBC. From 1922 to 1955 [when ITV was launched] if you paid for the BBC you got the BBC, and if you didn't pay for it, you didn't. There was nothing else."

So what is up for debate in Elstein's mind - and perhaps Whittingdale's? - is not the final destination but what we do to get there.

The director general, Greg Dyke, has written that "in an increasingly fragmented world, the BBC is part of the glue that binds Britain together". This only remains that case if everyone has access to it. Elstein sniffs that ITV is just as much a unifier - and we are not forced to pay for it.

Except, perhaps, we are. Advertisers pay for Coronation Street, but consumers pay for the advertising. That we do so unknowingly every time we go to Tesco does not make it any less true that we are paying.

I suggest that, though people may sometimes grumble, there is not widespread hostility to the fee. He points to the evasion rate. But a good proportion of those who try to evade it are not conscientious objectors, merely anti-social freeloaders who think they will get away with it: 10 per cent of people taken to court for not having a licence pay a monthly subscription to Sky.

"There isn't a substantial volume of organised protest against the licence fee," he concedes. "On the whole you accept what the Government has decided and that there is nothing you can do about it."