Anthony Hilton: A downside to windfall from mobiles auction

In his Autumn Statement earlier this month the Chancellor talked about how government income would get a boost of several billion pounds this year from the proceeds of an auction among mobile phone operators of the radio spectrum they need for 4G services. The Government said this week that there were several more hats in the auction ring than expected, which means stiff competition for established mobile operators. Reading the press release, you could almost see the Treasury rubbing its hands.

But I have mixed feelings about these auctions. The most famous one gave the then Chancellor, Gordon Brown, a windfall of more than £20bn, which sadly he did nothing memorable with. He could have created a permanent endowment to fund university research or the arts. Instead, he just put it in the spending pot with everything else.

The real danger, however, is that we think of these sums as a windfall when there is in fact a real cost. Arguably, there is no new money because the more the companies pay for spectrum, the less profit they earn in years to come, and the less they pay in corporation tax. Thus the one-off gain is cancelled out by lower receipts in the future.

The second problem is that the more the firms spend on spectrum, the less they have to roll out the actual service. The development of 3G in the UK was held back because of the financial damage winning the auction did to the operators. As a result, even today service is poorer than it should be, efficiency has been reduced and the economy as a whole has suffered.

George Osborne obviously wants the coming auction to raise as much as possible for the government coffers. But, for the reasons just outlined, that is not necessarily what would be good for the rest of us. I am sure he won't, but it would be nice if the Chancellor were to learn from the mistakes of his predecessor.