Communications Consumer Panel Supports Internet Tax?

HM Treasury recently organized a consultation on the ‘implementation of the new Landline Duty to help fund the roll-out of Next Generation Access to 90 per cent of Britain by 2017.’ I’ve been critical of this proposal, which arose from the Government’s June 2009 Digital Britain White Paper. The idea was to impose a tax on fixed line telephone service as a means to create a new revenue source to support and stimulate high-speed broadband — called Next Generation Access (NGA), with public funding directed at parts of the UK that would be unlikely to be reached by market-led developments. My concerns are several. First, there is already the beginning of a decline in subscription to fixed line phone service, before this new tax, and phone services are critical to emergency response, senior citizens and lower income groups. Secondly, the very groups that are likely to be disproportionately taxed are those groups least likely to use the Internet. For example, only 30 percent of those retired or of retirement age use the Internet in Britain. Yet nearly all of them will be financing NGA, and not be happy about it. The duty is small enough that it has been dismissed at trivial by many, but for lower income households, seniors on fixed incomes, small businesses, with multiple lines, and households with multiple lines, this will not be trivial. At a time at which the UK is moving out of a recession, it is critical to grow new and small businesses. Small enterprises should not be burdened with a new tax. The Internet has the potential to enhance the vitality of small business, but in this case, it will be positioned as a new cost. Finally, the idea of using telecommunications to raise general revenue has been a mistake in earlier decades. The liberalization of telecoms was one of the most successful public policies for economic development since it lowered the price of telecommunications, encouraging more people to use telecommunications for more activities.* The utilization of telecommunications is as important as its production for economic development. A real Digital Economy policy would lower costs of all forms of electronic communication, not raise them.

I am baffled by the decision of Ofcom’s Communication Consumer Panel to support this tax. The panel argues that it is a ‘pragmatic’ approach, but also recognizes that it will put low income households at risk, leading some to have compared it to a ‘poll tax’; hit small businesses harder; and put consumers in the devolved nations in a position of paying twice to fund NGA rollout. They make recommendations to deal with these inequities, but appear overly optimistic that these difficulties will be dealt with — somehow. Shouldn’t they (charged with representing the interests of consumers) withhold their support unless and until these problems are resolved? I had hoped they would.

In my personal opinion, support of this tax on phones to subsidize the Internet will further alienate those who are non-users of the Internet — and rightly so, and therefore work against public policies aimed at getting more people online. I am as supportive of fostering the vitality of the Internet in Britain as anyone — I am a student of Internet Studies, but to impose a redistributive burden on those most dependent on fixed line phones, and not using the Internet in many cases, seems wrong in principle, and likely to undermine the vitality of the Internet, and the larger economy. It is far from a pragmatic response.

*See for example: Walter Baer (1996), ‘Telecommunication Infrastructure Competition: The Costs of Delay’, pp. 353-370 in Dutton, W. H. (ed.), Information and Communication Technologies — Visions and Realities. (Oxford University Press).

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