It was an awkward moment for George Osborne this morning when the results of the 4G broadband auction appeared. The sale has raised just £2.3bn – against an estimate of £3.5bn which had been factored into the government’s accounts for this year.
That missing £1bn may be a drop in the ocean compared to the £212bn of extra borrowing which the coalition is having to make compared to its ambitious 2010 forecasts.
Yet the figure is of fierce political significance. That is because it could make the difference to whether the deficit is rising or falling this year.
Two months ago Ed Balls accused the Treasury of manipulating the public borrowing figures by taking account of 4G spectrum proceeds before the auction had taken place.
That, you may recall, was the reason for his stumbling performance when he responded in the autumn statement in December. Balls simply couldn’t believe that the chancellor had been able to say that the deficit was still going down and not up.
As it was, that extra £3.5bn meant that the deficit was still falling, albeit by only £1.5bn or so.
That afternoon, Balls was still livid as he briefed journalists outside the entrance to the press gallery in the Commons.
He told us that there had been “sleight of hand” by the Tories, claiming there had been “dodgy” accounting and manipulation of data in an attempt to keep public borrowing on a downward trajectory.
Mr Balls questioned the independence of the Office for Budget Responsibility for recording the sale of 4G spectrum licences – which has not yet happened – in the year before the proceeds would be spent.
It was “very dodgy” for ministers to “manipulate the borrowing figures in order to present a false picture”, he said.
“The idea, by the way, that this is an OBR decision – I would be amazed [at]. The Treasury has said, ‘Get this money in – this is our decision, we will get the auction done this year.’”
George Osborne’s response was that accounting for the 4G sale had been done in line with OBR guidance and not artificially to improve the appearance of the government’s finances.
But as the OBR is reminding people today, it merely certified a government estimate.
The key question, however, is whether today’s new figures mean that the deficit is actually going up rather than down after all.
For now it is all “in the balance” in the words of one key Labour aide. He admitted that the government’s claim to be reducing the deficit for 2012/13 could still be on track given that by booking the 4G proceeds Mr Osborne had been able to say the deficit was falling by £1.5bn.
The £1.2bn shortfall in the 4G sale takes that figure down to about £300m, he said. On top of that it’s worth remembering that state-owned Northern Rock announced just after the autumn statement that it would have to repay £270m to customers.
It is basically too close to call. Recent statements about the public finances have meanwhile suggested that the fiscal situation has deteriorated since December.
But then the new borrowing figures, expected tomorrow, are likely to be flattered by the short-term transfer of money from the Bank of England’s quantitative easing scheme: to the tune of some £11bn.
In anticipation of this, Rachel Reeves, Labour’s shadow chief secretary to the Treasury, warned people to look out for more “smoke and mirrors” tomorrow.
The disappointing 4G auction was “yet another blow” to George Osborne’s “failing” economic plan, she added.
Jim Pickard
Kiran Stacey