The debate about whether the Chancellor should tax broadband services to fund investments in the very hardest to reach areas of the UK is back again. As a concept it’s been doing the rounds for some years (Labour proposed a 50p tax in their 2010 manifesto) and it’s not unique to the UK (the US has had a levy mechanism for years) but if it’s to be effective in the UK it needs to form part of a clear strategy or  run the risk of diminishing take-up and deterring investments.

What would I do?

If I were asked (highly unlikely) I’d suggest that any tax-raising measure should form part of a strategy inching towards a copper switch-off, and should ideally include a date that copper will be switched-off. By giving a date it gives investors time to back their preferred horses and for the market to prepare for an all-digital telecoms market.

To kick-start the process, any levy on broadband should be limited to copper-based ADSL services only. This helps to maintain legacy service prices without delivering a monopoly profit which by narrowing the price differential should encourage customers to make the switch to newer fibre services. This in turns helps to encourage further private investment in fibre-based services in any geography, not just the most remote.

For the sake of guesstimating, if we assume 85% of homes and businesses take a broadband service, and around 25% have made the move to fibre services already, a 50p monthly levy copper service would initially generate around £7-8m per month but as people make the move and services become more readily available then this will gradually fall towards zero. But even accounting for this, a carefully managed programme could raise perhaps £300m over 5 years.

If this were pledged to a national investment fund where it could be matched by private funds and made available to operators it should create the kind leverage some of the emerging alternative operators have been able to deliver. The Cotswolds project is working at 78% commercial funding and Gigaclear’s recent wins appear to be higher still. If that level can be sustained then a fund of £300m becomes £1.5bn.

If the fund were offered as loans secured on the network assets, and the term limited to no longer than that asset’s economic life, it naturally lends itself to longer-term fibre networks and provides a means for the fund manager to take control of the assets should the original operator run into difficulty. While using a professional fund management organisation to run the fund should help to limit the risk of bad debt rather than expect public servants to unnaturally learn to gauge risk in short order.

So, yes, by all means tax broadband but make it part of a wider strategy to move the country to fibre-based services and retire copper.

  1. Bill Lewis says:

    Surely the ~ £2Bn already given to BT out of public tax revenue is already a huge tax as Government must of increased taxes somewhere else to fill the hole this created anyway?

    I for one would object to a tax on the public that pretty much solely benefits one profitable commercial organisation of all others.

    But then it has already happened and continuing to happen with phase 2, 3 … etc.. , so the point is moot really.

    Bill

    • Adrian Wooster says:

      Bill, As I understand it, the BDUK share of the cash given to BT cam from left-over money from the BBC Digital Switch-over but the local council match funds will have come from council tax funds.

      It ought to be perfectly possible to create a fund with the right investment profile to favour other operators. I’d imagine secured loans would almost be enough to deter BT bidding alone – the idea of anyone having a prior claim on their assets is probably unthinkable to them.

      In terms of Phase 2, I’m aware of four projects that went to other operators – Essex, Cotswolds District in Fastershire and Berkshire have gone to Gigaclear, and West Oxfordshire is working with community-led Cotswolds Broadband. I’m hopeful that there are a number of Phase 2 projects yet to contract, like Somerset & Devon, and some of those may also go with other operators, and I think (I don’t think naively) that Phase 3 is likely to see this trend expand significantly.

      I understand its hard to keep the faith when so many operators only experience of the programme thus far is to be overbuilt but I do think there are, finally, some signs that things will improve.

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