Culture Secretary Nadine Dorries has indicated the licence fee will be axed from 2028.
Ms Dorries said the time had come to “discuss and debate new ways of funding” the BBC but has not detailed the Government’s preferred alternative.
The annual payment usually changes on April 1 each year will be kept below inflation at the current rate of £159 until April 2024.
– What is the licence fee?
Any household watching or recording TV programmes at the same time they are being broadcast must have a television licence.
This applies to all forms of transmission including using the iPlayer on smart television, laptops and tablets.
It was introduced in June 1946, when television broadcasts resumed following the Second World War.
– How much is the licence fee?
A standard TV licence is currently £159.
The annual BBC licence payment normally changes on April 1 each year and is set by the Government, which announced in 2016 that it would rise in line with inflation for five years from April 1 2017.
However, Ms Dorries has announced that the licence fee will be kept at the current rate until April 2024.
This holds it below inflation, meaning a real-terms cut in funding at a time when the BBC is facing substantial financial pressure.
– What does it pay for?
The licence fee pays for TV, radio and online programmes and services including iPlayer, Radio 1, CBeebies and the World Service.
It also funds Welsh language TV channel S4C and local TV channels.
It is reported to be worth around £3.2 billion to the BBC.
BBC presenters such as Dan Walker and Gary Lineker have been sharing a graphic on social media showing the different BBC TV and radio channels supported by the fee.
– What alternatives are there?
– Voluntary subscription fee
An ally of Ms Dorries quoted by the Mail On Sunday said 19 to 34-year-olds are watching “YouTube, Netflix and videos on demand – they don’t watch the BBC, and shouldn’t be forced to pay for it.”
A subscription fee would attempt to mirror the systems used by streaming giants such as Netflix and Amazon Prime.
It would allow those who want BBC content to opt in.
However, it would face technical challenges because of the range of services offered by the BBC, with free-to-air broadcasts on radio and terrestrial TV difficult to place behind a pay wall.
It could also result in either a drop in funding for the BBC or a subscription fee that is higher than the licence fee.
The BBC does not have advert breaks on its domestic TV channels and its website is free from advertising.
However, abroad both services carry adverts with the income used to “help fund BBC services and keep the licence fee lower than it otherwise would be”.
The BBC could follow in the footsteps of ITV and Channel 4 and start hosting advertisements.
But there are suggestions this could encourage the broadcaster to focus on programmes that bring in viewers and lead to revenue at the expense of programmes that serve smaller groups.
Former BBC chairman Lord Grade ruled out advertising, telling BBC Radio 4’s Today programme it would “impoverish ITV, Channel Four, Channel Five, etcetera”.
He added: “The pot of advertising is not going to expand to meet the BBC’s needs.”
– Direct funding from the Government
As an alternative to the licence fee, the Government could support the BBC financially through an annual grant.
Questions have been raised over how this would affect the broadcaster’s editorial independence.
– Introduce a broadband levy
The BBC has looked at funding its services through a levy on broadband connections.
The existing licence is levied on the TV, the device historically used to consume BBC content, but the more modern equivalent would be the internet.
In 2020, the corporation told the Government it was “open to exploring this further”.
This would be easier to enforce but may not satisfy critics who would prefer a system that allows people to opt in.
– A combination approach
Former media minister John Whittingdale is among those who have proposed a mix of the above options.
Mr Whittingdale has suggested a “core” BBC comprising its public service broadcasting such as news and children’s programming could be funded by the tax-payer, while a Netflix-style subscription service could fund its big budget dramas.