The Government’s plan to add 50p per month to all phone bills to fund next generation broadband networks in rural areas will result in at least 100,000 low income homes being forced to give up their broadband lines. That’s according to Charles Dunstone, CEO of TalkTalk, the UK’s largest provider of broadband to homes.

Later today (Monday 2nd November) TalkTalk’s director of strategy and regulation, Andrew Heaney, will give evidence to the BIS Committee, to outline the company’s concerns. The tax, first proposed in the Digital Britain report in June, has not been the subject of any public consultation. The proposed taxation scheme will last for around seven years, beginning in 2010, raising £40 from every home; a total of about £1 billion.

“This is an unjust and regressive tax on all phone customers which will subsidise mostly richer rural households that can afford high priced super fast broadband services,” said Charles Dunstone.

“As well as being unfair we estimate that the increase in price will mean that over 100,000 mostly low income homes will be forced to give up their broadband lines. This is wholly inconsistent with the Government’s plans to tackle digital exclusion by increasing uptake and use of broadband.

“Crucially the scheme is likely to delay next generation broadband roll-out in rural areas rather than hasten it as private investors will wait for public funds to be made available. This will mean that much of the tax will be wasted investing in networks that the private sector would have built themselves anyway.

“I understand that this levy was devised at the last minute after the Treasury refused to make funds available, presumably because they thought it was a bad use of public money.”

TalkTalk will also express concerns to the BIS Committee that the Government has dodged proper public debate on this important issue by including the levy in the Finance Bill which traditionally is not consulted on.

TalkTalk supports well-targeted government aid for broadband and it has backed the universal service commitment to deliver 2Mbps broadband countrywide. However, TalkTalk believe that public funds must be focussed on delivering essential basic services (not for premium services that few want and only where the private sector has been unable to meet demand.

TalkTalk’s views is that it may well be that public funds are needed for next generation broadband but also that we are several years away from that point. Introducing an unfair tax now, according to the UK’s largest provider of broadband to homes,  is premature and will be counter-productive. The Government and Ofcom should, in its view,  focus on enabling private sector investment and ensuring effective competition.

“When broadband first started people said the networks would only reach 60 per cent of the population,” said Charles Dunstone. “The private sector, unaided, actually got to 99 per cent coverage, far further than in most other countries.

“We now need to let the private sector drive next generation broadband as far as it can. Public funding at this stage – in what appears to be an effort to ‘keep up with the Joneses in Korea, Singapore and the Netherlands – is simply going to waste customers’ money and slow down roll-out.

“To tax all phone customers is not even robbing Peter to pay Paul, it’s just robbing Peter.”