Former BBC director-general Lord Hall of Birkenhead has backed a “reformed licence fee” or progressive household levy as the way to fund the corporation in future.

Ex-culture minister Nadine Dorries branded the TV licence fee “outdated” and in January asserted that “this licence fee announcement will be the last”.

However, a House of Lords report examining all possible funding models found that full commercialisation is not a viable option, as it would not bring in enough revenue, as well as presenting other difficulties, and also ruled out a Government grant model.

It suggested a wide range of other options, however, including a reformed licence fee which is progressive, meaning those with more pay more, and those with less pay less.

Another mooted alternative is a progressive household levy, possibly linked to council tax.

Lord Hall, who was head of the BBC from 2013 to 2020, said during a debate in the upper chamber: “Rightly, advertising looks difficult.

“So is a model based wholly on subscription – and that is because it wouldn’t deliver on the important principle of universality, that broadcasting should deliver good things that everyone should have access to equally.

“And that principle is as important now as it ever was, in my view, and defining what that means now and for the future going forward is going to be very, very important.

“The key objective from now until 2027 should be to find a way that is fairer.

“Poorer people should pay less, the better-off more, which, to my mind, points to a reformed licence fee of some sort, of some form of household levy.”

Baroness Rebuck, chairwoman of Penguin Random House’s British operations and a member of the Lords Communications and Digital Committee which produced the report, noted that the licence fee model is sometimes considered the “easiest” method.

She said: “The European Broadcasting Union, impressed by the BBC’s audience, quality, impact and brand, argued that if a country has a reasonable licence fee and avoidance was low, it is the easiest, most transparent way of funding a national broadcaster.

“And yet it is not a progressive model.”

Liberal Democrat peer Lord Addington suggested the licence fee needs a “rebrand”, perhaps taking out the live TV aspect of it and grading it.

Culture minister Lord Parkinson of Whitley Bay, however, outlined the difficulties associated with the licence fee, including decreasing uptake.

He noted a drop in the number of people holding a TV licence of 1.2 million from a peak of 26 million in 2017/18.

He said there are “clear challenges on the horizon, not for just the BBC, but for our public service broadcasting system as a whole posed by rapid changes to the sector”.

These changes include the rise of streaming services and the competition they pose, the shift from linear to on-demand TV, and the move to watching on other devices like laptops, tablets and mobile phones.

Lord Parkinson said the Government will launch an independent review into BBC funding ahead of the Royal Charter in 2027.