A report commissioned by the Conservatives has called for the licence fee to be scrapped.

The study, conducted by an expert group headed by Channel Five chief David Elstein, suggests a radical shake-up in the operation of the BBC.

The key recommendation of the review group, which is not yet Tory policy, is the scrapping of the annual compulsory licence fee.

Instead, the group says the BBC should be funded in a way similar to Channel 4.

It also calls for the abolition of the board of governors, the splitting up of the corporation, the introduction of subscription charging and the creation of a public broadcasting authority.

"Arrangements devised in 1926 are not going to be capable to sustaining the world's most important broadcaster in the challenging times ahead," said Elstein.

Radical reappraisal

The report also warns that the current funding system needs radical reappraisal.

"The ceiling imposed on the licence fee by political acceptability will gradually cause the corporation to fall behind rivals with access to what BSkyB has shown to be the deep pockets of consumers," notes the study.

While the Conservatices are not bound to accept the recommendations, the report comes at a critical time for the BBC.

Following the Hutton report, some suggest the government's review of the BBC's charter could result in radical change at Broadcasting House.

The Liberal Democrats, however, have claimed that the Tories are seeking to privatise the corporation.

"The Tories' threat to pull the plug on the BBC poses a threat to the future of British broadcasting," said spokesman Don Foster.

"The abolition of the licence fee in other countries, such as New Zealand and America, has shown the crucial role of public service broadcasting diminish rapidly.

 "Michael Howard has to decide whether he wants to include the scrapping of the licence fee in his next election manifesto.

"He may be tempted to axe the BBC to fill the black hole in Oliver Letwin's finances. If he does, the Tories would at last support pulling the plug on the BBC. Margaret Thatcher would finally get her way."