The future of the BBC’s TV licence fee is under scrutiny after the number of licences fell by more than half a million in a single year.
The corporation’s annual report, released on Tuesday, showed there were 23.3 million licences active by the end of the 2025/2026 financial year, meaning a drop of 540,000.
The number has fallen by more than 2.5 million since the start of the decade, when it stood at 25.9 million.
A government review of the BBC’s Royal Charter is underway, examining its funding model.
Culture Secretary Lisa Nandy has already labelled the licence fee “unenforceable” and “insufficient”, while the BBC has said that it is “willing to consider radical options for future funding”.
Here is a look at how the licence fee works and potential options for its replacement.
How the licence fee works
The standard TV licence fee costs £180 per year and is the main source of funding for all BBC television, radio and online services.
This includes the BBC’s iPlayer, Sounds app, World Service and radio stations.
According to its 2024/2025 annual report, the broadcaster’s income from the licence fee was £3.8 billion that year, with 23.8 million licences in force.
Even if a user does not watch BBC programmes, a licence fee is legally required to watch or record television on any channel or service, including Sky and Freeview, watch live on streaming services, including YouTube and Amazon Prime Video, or to use BBC iPlayer.
This applies when using any device, including a television, laptop, mobile phone or tablet.
The BBC is currently used by 94 per cent of adults a month, but only 80 per cent of households pay the licence fee, according to the latest figures.
Options for replacing or updating the current licence fee model include:
Advertising
It has been suggested that the BBC could move to funding through commercial advertising, similar to other television channels.
The broadcaster currently does not have ad breaks during its programmes or on its website in the UK.
In response to this option, the corporation has previously said this would lead to a “different BBC”.
It said that there are “well-founded and longstanding concerns about a full advertising model”, including the fact it would draw revenue away from other broadcasters, including public service broadcasters (PSBs).
Subscription models
A subscription model, similar to that of streaming services such as Netflix or Disney+, could be an option, including a tiered structure where users pay for different levels of content.
The BBC has previously said a subscription model would “turn a public service into a consumer product” and “incentivise commissioners to prioritise content that attracts subscribers and reduces subscriber churn”.
This would result in cutting services that are not commercially focused, including education, radio, most news products and local services, the corporation has argued.
The BBC has also raised issues with suggestions of a two-tier or top-up subscription model, in which more commercial content – such as drama, comedy and entertainment – is behind a subscription tier.
“This would deny non-subscribing households, including those that cannot afford to subscribe, access to content that is central to the BBC’s public purposes,” the broadcaster has said.
Taxation
The Government has previously said it is not considering general taxation as a replacement for the licence fee.
In January 2025, Ms Nandy said that this option had been discounted as the Government wanted to “protect the BBC” from “political interference”.
Sliding payment scale
The culture secretary has said she could be open to replacing the flat licence fee with a sliding payment scale after a suggestion by BBC chair Samir Shah.
She criticised the current flat fee, saying it meant “poorer people pay proportionately more than anybody else”.
At present, there are three concessions funded from licence fee income, including free TV licences for over-75s in receipt of pension credit, half-priced licences for the severely sight impaired or blind, and an annual fee of £7.50 for people living in some types of care.
