Do we need a broadband tax?

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In the last week, the Shadow Minister for Culture, Jeremy Hunt, has declared that should it be elected to power at next year’s general election, the Conservative Party will reverse the proposed 50 pence a month levy on telephone lines that’s due to be applied by the government in the next few months.

This levy, which would effectively be a £6 communications tax on every UK phone line, is designed to go some way towards paying the bill for the necessary upgrades to the UK broadband infrastructure.

The infrastructure as it stands is great if you’re in a built up, populous area, where communication companies can’t install lucrative fast broadband lines quick enough. But in rural areas? It’s a different story. Even in more urban areas particularly towards the north of England, the necessary investment has been sorely lacking.

And with the target of Lord Carter of Barnes’ Digital Britain report earlier this year being for everyone in the UK to have access to a 2Mbps broadband connection by 2012 (which is likely to be comparably very slow by that time), there’s a significant degree of investment required to stand any chance of meeting that lofty goal.

Money, money, money

The levy of 50 pence a month is intended to raise in the region of £150 million a year (and as much as £175 million) to help fund the necessary upgrades to the communications infrastructure. It’s unclear at this stage what the Conservative Party – who is likely to form the next government as things stand – would replace it with.

Because there’s a bigger problem here: the 50 pence levy alone simply won’t pay for the work that needs to be done. In fact, some estimates suggest that the longer term bill – including fibre option upgrades – could run to over £5 billion. And £150 million a year just isn’t going to come close to covering that. If the levy is abolished in its entirety, then $1.5 billion of investment over a decade has suddenly got to be replaced.

That said, it was never the idea for the taxpayer to fund all of the necessary work. By providing some degree of subsidy, the government instead needs to attract the necessary private sector investment to take on what has to be done. By contributing some of the public purse to the bill, it at least ensures that areas that aren’t commercially viable for upgrades won’t get totally left out.

More to the point, it pays for the areas of the country that private companies have steadfastly refused to upgrade themselves, given the lack of business potential in them doing so. Businesses, understandably, only want to deploy their own resources where they can see some form of return.

The government has recently reiterated its desire to get the so-called broadband tax on the statute books by the time the next general election is called. That means it needs to make its way through Parliament in the next six months (accounting for the month where Parliament is dissolved so that all the MPs can go and fight for their seats).

Where that intention is left though, given the high probability that any legislation will be quashed fairly quickly under a new administration, remains to be seen. There is, of course, also the possibility that the Conservatives may find it harder to withdraw the tax that it may at first appear, once it’s made its way to the statute books.

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