Deficit vow in doubt after 4G auction

David Cameron’s vow that the coalition is cutting Britain’s deficit is in doubt after the auction of 4G broadband raised £1.2bn less than the Treasury had predicted.

Full superfast mobile services will finally be launched in Britain after a five-year wait but the auction undershot the government’s own forecasts.

The one-off sale of spectrum to five groups – Vodafone, EE, O2, 3 and BT – raised just £2.3bn against the estimate of £3.5bn made by chancellor George Osborne two months ago.

The disappointing proceeds have undermined Mr Osborne’s claim in the December autumn statement that the deficit would be smaller in 2012/13 than 2011/12 – albeit by less than £1.5bn.

Ed Balls, shadow chancellor angrily complained after the statement that the Treasury was manipulating the public borrowing figures by booking the 4G auction proceeds before it had taken place; although Mr Osborne insisted the accounting had been done in line with OBR guidance.

The all-party Treasury committee warned subsequently that the estimate of 4G proceeds was “subject to uncertainty”.

Now the £1.2bn shortfall makes it more likely that Britain’s deficit may be rising after all this year, a significant political blow for the coalition, given the weight it has attached to cutting the deficit every year.

Mr Osborne’s claim was already looking doubtful, given that public finances had deteriorated since December’s official forecasts because of disappointing tax receipts.

The Treasury borrowed £121.4bn last year, about £1.5bn more than the £119.9bn official forecasts for 2012/13, after stripping out various flattering transfers.

However, those forecasts were based on an expectation the 4G auction would raise £3.5bn. Moreover, the state-owned Northern Rock bank has also since announced it must pay £270m of compensation to customers.

The Institute for Fiscal Studies, a think tank, said this month it thought public sector borrowing this year would be significantly higher at £125.4bn.

On Thursday, official data on taxation and public spending in January will shed more light on the state of the public finances.

The Office for National Statistics will also announce how it has decided to treat the transfer to the Treasury of the proceeds from the Bank of England’s quantitative easing scheme.

Paul Johnson, head of the IFS said the outcome of the 4G auction was of “no plausible fiscal significance” and would simply increase expected borrowing for the year by about £1bn.

But Rachel Reeves, shadow chief secretary to the Treasury, said the disappointing proceeds were “yet another blow” to George Osborne’s “failing” economic plan.

The auction of 4G spectrum was first mooted in 2008, but years of arguing between operators threatened to escalate into legal action over how it would be divided and the resulting regulatory caution has caused a long delay. EE has been selling 4G services exclusively since late last year.

The value of the benefits 4G services will provide to UK consumers over the next 10 years is likely to be at least £20bn, according to Ofcom, the telecoms regulator.

Vodafone spent the most at £791m, followed by EE with a bill of £589m, O2 with £550m (which includes an obligation to cover 99 per cent of the UK) and 3 with £225m. Outstanding sums will need to be paid to the Treasury by February 21.

In an unexpected move, BT has spent £186m on buying some of the frequencies at the higher end, to bolster its mobile broadband services alongside its WiFi.

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