Coffee House

Will Osborne have the luck of the Irish with his 4G auction?

16 November 2012

Could George Osborne be in line for a genuine windfall? The Chancellor is getting quite good at conjuring fake ones (Post Office pensions, raiding £35 billion from the Bank of England) but he has yet to sell the 4G licenses. This could be more significant than next month’s mini-Budget. The stunning success of Ireland’s 4G auction (here) suggests that the UK auction may yield a lot more than is currently expected.

A decade ago, governments world over pocketed massive windfalls auctioning the 3G licenses to mobile operators. This time Ofcom has put a reserve of £1.3 billion. But the Irish government expected to get just €170 million from its licenses. In the end, it raised €482 million in upfront fees with €373 million more to come by the end of the next decade. The Office for Budget Responsibility has penciled in quite a startling range for the UK: between £1.4 billion and £6.7 billion. If Ireland is anything to go by, it will be at the upper end of this — and perhaps beyond.

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Osborne will need it, because he’ll get sweet nothing from the banks. In 2008 when Alistair Darling was snapping up all these toxic assets, it was said that whoever wins the next election may be in for a great time when the economy has recovered and these assets will be sold at a massive profit. If only. The Americans are doing things properly: it looks like they’ll offload AIG at a profit. But the UK taxpayer has not much chance of recovering its investment in RBS and Lloyds. The years ago, the OBR estimated that Osborne would be £2 billion in the black from selling all those supposedly detoxified assets. It’s now forecasting a £14.3 billion loss. (Not that anyone noticed – Osborne is lucky that his critics haven’t quite got into the habit of looking for stories in the OBR document published on Budget day).

And how much of the destruction in RBS and Lloyds’ value is due to the proposed bank regulation plans? That’ll be a sum you won’t find anyone keen to calculate, but senior figures in the City believe that Osborne’s bank regulation has cost the taxpayer billions in damage to RBS and Lloyds’ market value. So the 4G windfall may be the best news he can expect.

PS CoffeeHousers rightly point out that every penny paid to the Treasury in 4G license fees will be recouped from the public in higher bills.  So another tax, in other words.

PPS OfCom is already talking about 5G. At this rate, we’ll have the deficit paid off in no time…

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Show comments
  • Oliver S. This can be a valid use for auction.

  • HooksLaw

    Talking of ‘fake windfalls’ is a crudity that is beneath you.
    But I imagine you are still smarting from Lord McAlpine proving you wrong in your assertion that you cannot be libelled on twitter.

  • Daniel Maris

    The OBR – so useless at forecasting up till now – have presumably realised that in order to make your forecasts correct, you have to give a range from the absurdly low to the absurdly high.

    What exactly is the purpose of the OBR, apart from swelling the bank accounts of the Chancellor’s mates?

  • 2trueblue

    Lets hope that it raises as much as possible, we need it!
    The banks that have the biggest problems world wide are all to do with property, both commercial and housing. The commercial property market is still very much in the doldrums but the housing market has been held up by the “buy to let” area, which has become the real problem as it prevents the ‘first times’ from getting on the property. It is easier to get a buy to let mortgage that it is to get first time loan.

  • Nick Reid

    Oh come on Fraser, this clearly isn’t a windfall. It’s just a disguised tax whose impact will fall on higher phone rates for all of us, lower pay for telecom workers, lower profits for telecom companies (and thus lower taxes) and lower dividends for shareholders (ie pensioners).

    It would involve a rather complicated econometric model to determine exactly whether the 4G auction ultimately raised more tax than giving it away free (and seeing higher growth, employment and higher taxes as a result) but it probably best to assume that the 4G auction will just redistribute a sum of cash from one part of the economy to another, with no overall net benefit.

    • MikeBrighton

      We are in total agreement lol

    • Daniel Maris

      Fair points. It’s not like an oil exploration licence in that sense.

    • HooksLaw

      You are right in that it is a disguised tax. Brown took 20 billion out of 3G which meant costs to the users were inevitably higher. Brown certainly used it to make his borrowing figures look good.
      Both 3G and 4 G should have could be used to improve broadband and related infrastructure and make us that bit more competitive.

  • MikeBrighton

    It’s not a windfall but a hidden tax. Fraser you must know this.
    Only people pay taxes, the 4G license cost will be paid for by reduced shareholder returns so paid for by investors and your and my pension, workers in the industry through lower wages and bonuses or consumers through higher prices.

    Is Osborne Gordon Brown in disguise?

    • RKing

      Everything Brown did went wrong (until he saved the world!!) but with Osbourne everything he has done has……. errrr!

      I see what you mean!

    • HooksLaw

      The licences coming available is no fault of Osborne’s.

      The licences are due and a fee is received. Normally we might argue what to do with the money, but in present circumstances it seems sensible to pay off the debt.

      • MikeBrighton

        Osbourne could always waive the licenses and provide them to the telco’s at no cost rather than (esentially) increase the level of taxation in the economy which is eye-wateringly high already

      • Dimoto

        Don’t worry, Balls has already made that decision for you. In fact he’s spent it about four times, so even Fraser’s highest imaginable figure won’t come close to being enough.
        He’s not the Chancellor, but … you know …. habits of a lifetime ‘n all that ?

  • telemachus

    Now do we actually want Irish luck?
    Bailed out Ireland has made spending cuts and tax hikes worth 25 billion euros since 2008 – equivalent to 15 percent of annual output – and believes the 8.6 billion program already planned for 2013 to 2015 will be enough to get it back on track.

  • captaintallywag

    The more they pay for the 4G licences, the higher the costs will be to use the service. This so called ‘windfall’ is basically a tax on future usage, in which case, the lower the amount the better as far as I’m concerned.

    No suprise that the leftie-pretend-to-be-righty Spectator would be cheering higher costs.

    • MikeBrighton

      It’s a tax on future usage realised through one or more of; reduced shareholder or capital returns, reduced wages in the industry or (most likely) increased prices for consumers.

    • Fergus Pickering

      But since I won’t use 4G what’s it to me? I have a simple rule about tax. If I don’t pay it then I don’t care, in fact I’m all for it. If I do pay it then it is iniquitous and will ruin the country. It works the same way for benefits. But I expect you lot are all high minded and rich..

  • salieri

    No matter how much the licence sale raises, we can sleep easy in the knowledge that much of will be donated to third-world kleptocrats and murderers.

    • telemachus

      Which in fact brings us more back in goodwill than the outgoings

      • MikeBrighton

        Yes the Mercedes and BMW dealerships are very pleased to take our money. I’m sure they will be sending Greening a Christmas Card this year.

    • HooksLaw

      Its going to pay off the deficit, though as a one off you might think of it as paying down the debt.

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