New 4G Phone Operators Announced By Ofcom

Written By Unknown on Rabu, 20 Februari 2013 | 23.15

4G Auction Is New Blow To Osborne

Updated: 3:49pm UK, Wednesday 20 February 2013

By Ed Conway, Economics Editor

If you cast your mind back to the Autumn Statement last December, there was one moment in the Commons debate that stood out: when the Shadow Chancellor tripped over his words in his response.

Ed Balls was thrown by George Osborne's announcement that, even after a whole load of accounting changes were ignored, the Government would borrow less this year than the year before.

To be precise, it was £1.1bn less, should it hit its £120.3bn borrowing target in 2012/13.

Mr Balls had expected the Chancellor to acknowledge that due to worsening economic conditions, he would have to borrow more than last year's £121.4bn.

He had not reckoned on the fact that the Office for Budget Responsibility would include the proceeds of the 4G spectrum auction in this year's public finance figures.

It was thanks to that extra money, estimated at £3.5bn, that the Chancellor would be able to claim borrowing was still falling rather than rising this fiscal year.

All of which is why the final tally of the proceeds from the 4G auction will come as a real fiscal, not to mention political, blow for the Chancellor.

All else being equal, he will end up borrowing more this year than last because the 4G auction is only generating £2.34bn rather than that expected £3.5bn.

Now, this does not mean he will break any of his fiscal rules - or to be precise the one he's still got left to break - but it is nonetheless a political disappointment.

It is particularly so, given that some within the Treasury had been quietly hoping for a far bigger figure.

After all, back in 2000 the Treasury's internal forecasts were for the 3G auction to raise not much more than £1bn, and it ended up generating £22.5bn.

The recent Irish 4G auction also outperformed expectations.

But now this news more or less eliminates the possibility that there will be a fiscal white knight riding to Mr Osborne's rescue.

Having said that, it is wrong simply to treat these auctions as a way of extracting money from business.

Back in 2000 there was a feeling within the telecom sector that companies had overpaid for their 3G licenses, and that, in turn, may have fed into higher mobile tariffs and undermined investment in phone masts and infrastructure.

This is why Ofcom believes that it is more sensible to consider the long-term economic benefits for the UK, rather than the one-off fiscal impact.

Whether Mr Osborne agrees is another matter.


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