LONDON: European Commission regulators could scupper the UK government's plans to subsidise Channel 4's digital switchover costs from the licence fee levied on all  households owning a TV set. But this cash cache is primarily intended to fund public broadcaster, the BBC.

A seventeen page letter from EU competition commissioner Neelie Kroes suggests the proposal to divert £14 million ($27.2m; €17.6m) from the public purse could breach state-aid rules aimed at halting unfair competition.

Tough-talking Kroes warns British foreign secretary David Miliband: "The commission doubts whether the notified measure is compatible with the common market."

Channel 4 has long campaigned for public cash to ease the financial woes it says are caused by the expansion of digital media.

The broadcaster, state-owned but commercially-funded, insists it needs extra cash to fulfil its public service remit as advertising revenues are squeezed.

However, Kroes' interim ruling questions whether the money currently set aside to pay the digital transition costs "is necessary and proportional.

"The mere fact that the switchover may affect its profitability (but not its viability) does not constitute a valid reason for claiming state funding."

She points outs that a recent report on the broadcaster's finances, commissioned by UK communications watchdog Ofcom, states that Channel 4 "faces the prospect of declining profits, not the loss of its ability to deliver its public service remit or, indeed, maintain its current schedule”.

Kroes also highlights Channel 4's substantial cash reserves of £145m.

In response, the broadcaster says the report was a "pretty standard" part of the regulatory process and that it would be arguing that a top slice of the licence fee should be counted as "special funding", not unacceptable state intervention in the broadcasting market.

Data sourced from the; additional content by WARC staff