Mobiles auction will earn Treasury £15bn

The Government's auction of the next generation of mobile phone licences is to raise at least £15bn, dwarfing past privatisations and providing an unexpected boost to the public finances, insiders said last night.

The Government's auction of the next generation of mobile phone licences is to raise at least £15bn, dwarfing past privatisations and providing an unexpected boost to the public finances, insiders said last night.

The money involved is said to be at least seven times more than the figure the Treasury is believed to have pencilled in. The sum eclipses the £7.5bn raised by the sale of shares in BP, the biggest privatisation, and is equal to the planned three-year increase in the NHS budget. Officials insisted the Chancellor would not be able to stuff the revenue into a bulging pre-election war chest. "This money is not going to be available for tax cuts or spending," said one.

Although the proceeds of the auction will provide a tremendous cash boost, which will reduce the level of national debt, the Treasury said the benefits to the Government's borrowing requirement would be spread over 20 years, the lifetime of the new licences. But the official conceded: "There is certainly a benefit to the public finances."

The scale of the expected windfall, and the reductions in debt interest payments that will result, will give Gordon Brown even more leeway in planning next year's Budget. That is expected to be the last before the next general election. Mr Brown has used cautious assumptions and clever fiscal planning to ensure he has a comfortable pre-election cushion. The Budget earlier this month saw him reaping some of the benefits, with his surprise announcement of a huge cash boost for health and education.

The amount so far bid for five licences to run the next generation of mobile services soared yesterday to £8.65bn - a jump of £1.3bn in one day. The importance to the bidders of gaining a licence reflects the need for mobile operators to build network coverage across Europe.

So far, the highest bid has come from BT Cellnet (for "Licence B") offering £1.92bn. The licence could eventually attract £4bn, industry experts say, because it offers the most spectrum capacity to the four existing mobile companies. Some of the world's biggest telecoms players, not to mention Rupert Murdoch, are bidding for other licences. Yesterday One.Tel, an Australian consortium in which Mr Murdoch's News Corp is an investor, was bidding £1.79bn. Other contenders include 3GUK, owned by Ireland's Eircom, Orange, One2One and the Richard Branson-backed SpectrumCo.

The auction has no set time limit. Licences will be awarded once eight of the 13 companies in the auction withdraw. None has shown any sign of pulling out. The prize is a 20-year licence to provide the so-called third generation mobile service. The next generation networks will offer new services such as video phones and permanent access to the internet.

The auction, being conducted by the Radio Communications Agency on behalf of the DTI, passed its 86th round yesterday.