MPs condemn 50p broadband levy as 'regressive'

The government's proposed 50p monthly levy on fixed-line connections, intended to fund speedy fibre access across the UK, would be regressive and poorly targeted, a parliamentary select committee has said.

The levy "would have a much greater impact on the less well-off who will pay for an enhanced service which only a minority will enjoy," the Business, Innovation and Skills (BIS) Committee said in its Broadband report, published on Tuesday.

"The government's proposals to intervene more widely in the next-generation access markets are unwise at this stage," the cross-party committee wrote. "Early government intervention runs a significant risk of distorting the market and will not allow time for technological solutions to extend the market's reach across the country.

"Furthermore, there is little evidence to suggest a pent-up demand for this enhanced service with consumers currently unwilling to pay the premium for such services."

The charge, known as the Next Generation Levy, was proposed in the Lord Carter's Digital Britain report in June 2009 as a way of funding the rollout of fibre-based, next-generation broadband to parts of the UK — such as rural areas — where ISPs are loath to invest due to perceived poor returns. The levy is not included in the Digital Economy Bill, which takes in many of the Digital Britain recommendations, but will instead be included in the upcoming Finance Bill.

A spokesperson for BIS, the department in charge of the Digital Britain project, said on Tuesday that its analysis shows that "without intervention, the market will only reach up to 70 percent of the country, so it's vital [that BIS acts] now to ensure no area is left behind".

"The 50p duty we have proposed is modest, fair and affordable and is the best way to drive further investment in our networks," the spokesperson said. "The duty will generate some £1bn investment in upgrading our digital infrastructure, which will particularly benefit rural areas.

"We're currently consulting on the most effective way to deploy this investment with public and commercial benefits in mind, and will consider the committee's report in our final response."

The fund for extending next-generation access (NGA) across the whole UK is separate to that for providing universal 2Mbps coverage across the country. The latter fund, also proposed in Digital Britain, would use whatever BBC licence fee money is left over from the national digital switchover.

The Conservative Party has opposed the 50p scheme, proposing instead that the digital-switchover leftover pot should be used to fund NGA in areas ignored by the market when universal 2Mbps access has been achieved.

In its report, the BIS committee also weighed into Digital Britain's 2Mbps universal service commitment, agreeing with the government's proposals but suggesting that the government has not defined what 2Mbps will mean in practice.

"A clear definition is vital for early delivery of the Universal Service Commitment," the committee said. "We believe that definition should be the delivery of a minimum 2Mbps, under normal circumstances, to all users at all times."

The proposed 50p levy has also been criticised by some ISPs, who have argued that it would simply go into the coffers of large ISPs such as BT and Virgin Media. Upon the release of Digital Britain, Chris Smedley, chief executive of the fibre network provider Geo, said the government should rather look at lifting business rates on fibre deployments, to encourage investment by smaller players.

The BIS committee echoed Smedley's sentiment on Tuesday, arguing in its report that "government intervention at this stage should concentrate on changing policies to encourage investment in the NGA market".

"This could best be done through the tax and regulatory systems," the committee said. "The business rating system currently discriminates in favour of BT and against its competitors. We believe that the government should consider a reduction, or even a temporary removal, of business rates on fibre-optic cable. This would be a more effective use of limited public-sector funds than direct financial intervention."

The committee also recommended removing barriers that prevent access by ISPs to the BT duct network, municipal ducting, and canal and railway networks. BT itself said earlier in February that it was discussing the opening of its ducts with Ofcom.

There should also be a dedicated full-time minister to deal with the implementation of Digital Britain, the committee argued. The current minister in charge is Stephen Timms, who also works for the Treasury. According to the committee, these arrangements "create conflicts within the policy-making process and do not provide the appropriate level of ministerial oversight".