Runways and economic lift-off

Heathrow airport

To tell you what you know, the UK is an economy with unsustainably large imbalances.

The income we receive from the rest of the world, from what we export and from our overseas investments, has for 30 years been too small to cover what we buy abroad. Which is one important reason why the indebtedness of the nation, or the sum of government, business and household debts, is unsustainably large and rising.

And, the gap between what the government spends and receives from tax revenues is also widely seen as unsustainably large, and not falling fast enough (sorry I am lingering on the blimmin' obvious).

Now there are only two ways to deal with such imbalances.

One way is austerity: households can save more, buy less and become reconciled to diminished living standards and less opulent lifestyles; governments can reduce their expenditure and put up taxes.

The other way is to promote growth, especially of trade and inward investment, so that the gap narrows between exports and imports, and activity in the UK revives to boost tax revenues for the government.

The hub effect

Now you might think that growth sounds like far and away the most attractive of the two options: it would allow us to sustain and even possibly improve our standard of living, whereas austerity is all about accepting that we've been living beyond our means.

Passengers queuing at Heathrow Heathrow is more-or-less at full capacity

But if you thought promoting growth was the easier option, well I have only one word to say to you: "Heathrow".

To explain.

There is a consensus that an open trading economy like the UK's requires what is known as a "hub airport".

This is an airport which serves lots of destinations all over the world with direct flights, and caters for vast numbers of passengers in transit between destinations.

There is evidence that the benefit of a hub airport is not just in the direct travel revenues it generates but in the way it stimulates trade, and persuades overseas businesses to open offices and plant near the airport.

Quantifying these benefits is not a precise science, but Frontier Economics estimates that a better London hub would add up to £2bn to trade.

Here is the thing: Heathrow is Europe's biggest hub airport, but it is more-or-less at full capacity and is creaking; so it has seen important new flight routes, to fast growing Chinese cities (for example), gravitate to rival hubs, such as Frankfurt. And that brings the risk that Chinese businesses will set up shop near Frankfurt, and not in Britain.

Which is why, as various ministers and officials have said to me many times since the election, the infrastructure project that would probably do more than others to stimulate growth would be building one or two additional runways at Heathrow.

But, of course, almost the first action of the coalition government was to do the opposite, by shelving plans for the expansion of Heathrow.

However, recognising it may have been a bit hasty, the government then set up a commission, under Sir Howard Davies, to make a recommendation in 2015 on the best option for ensuring that the UK continues to have Europe's leading airport hub.

Too late?

The point is that for all the likely economic benefits of adding to Heathrow's capacity, the political cost was seen by the government to be too great: alienating those who fear their lives would be ruined by increased noise pollution and a deterioration of air quality was just too scary.

Does this reveal a flaw in the ability of the coalition to make tough decisions? Some would say it does, although that would be to ignore 50 years of dithering by successive British governments about whether to embark on the kind of infrastructure modernisation that comes more naturally to the Chinese, Americans and French.

So today Heathrow is lobbying Davies's commission to show favour on one of the three sites it has identified for an additional runway - and reject rival proposals from Gatwick and Stansted, and the ambitious project championed by London's mayor to flatten Heathrow, construct new homes and businesses on the released land and build a whole new hub to the east of London.

Anyway, even with a following wind (which doesn't exist), none of this will happen for many years (the earliest a new runway Heathrow could open, given the political, planning and construction timetables, is 2025 - and that would be for the option that delivers the least capacity gain for the most disruption to residents).

By which time, the moment of maximum benefit for the British economy may well have long gone.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 74.

    We need a quick win followed by a Strategic answer.

    Quick win - use runway capacity at Northolt as 3rd runway for short haul flights. Build a direct metro link to existing airport at Heathrow for long haul. Should be ready in 4-5 years. This should suffice for 30 years by which time additional capacity can be properly planned and built.

  • rate this

    Comment number 73.

    Robert there is always a third way improve the economy
    invade saudi arabia and steal its oil

  • rate this

    Comment number 72.

    The nimbyism in this country will eventually bite us big time, unless we get on & build this infrastructure to promote the right kind of growth, this country is doomed to stagnation. With the huge debt burden we already have & an unsustainable growth in demand on Welfare/NHS in 10 years we have a choice, MASSIVE cuts to both or huge tax rises for everyone, be it Tesco, Branson, or Bob the binman!

  • rate this

    Comment number 71.

    If the UK is serious about sorting out its deficit it requires teh Government to make BIG decisions:
    1) Build a new hub airport in a
    2) Get on with shale gas!
    3) Stop building windfarms .
    4) Build some nuclear power stations
    5) upgrade the rail/road infrastucture

    If we did these projects then GB Plc could grow its way out of its current economic mess!

  • Comment number 70.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 69.

    The only "operators" asking for this are BA and BAA, i.e organisations beholden to their shareholders.

    Yes, infrastructure is important, but it's needed in the wider economy away from London, which keeps getting everything.

    At the moment growth is being, once again!! fuelled debt, (witness the current a/c deficit worsening.) Robert is doing the politician's bidding again. BBC just gets worse.

  • rate this

    Comment number 68.

    I agree with the comments about HS2 being a white elephant, it only makes sense (for me) if the hub airport is in the Midlands. I unfortunately fly with work but where possible avoid LHR like the plague - I was pleased when some of the gulf carriers started to use Manchester more, especially when Emirates introduced the A380. I still believe B'ham, EMA or an old RAF base would be better than LHR.

  • rate this

    Comment number 67.

    It appears Robert got swayed by vested interests and somehow failed to apply his usual rational approach to what is an emotive issue for many.

    The way I see things:
    - building extra capacity at Heathrow will not bring tangible additional benefits to the UK
    - creating better national infrastructure should spread benefits around the country rather than just London
    - HS2 is a white elephant

  • rate this

    Comment number 66.

    It's no wonder the USA is so rich and influential, they see opportunities and grab them. If this were the USA, a new runway or two would be in operation by now.
    It's like shale gas; the US are actually doing it, Everyone benefits financially especially the less well off since energy prices are 35% of those in the UK

  • rate this

    Comment number 65.

    The UK is bottom of the class for infastructure, and tends to get round to building unpopular expansions when they are already far too late (eg Terminals 3 4 and 5) by the time the got built they were overcapacity.

    However a new runway for 2025 might not be needed in 2025 - if the UK leaves the EU all the arguments as a Euro hub evapourate with the inward investment.

    UK solution = dither

  • rate this

    Comment number 64.

    If we really need this hub then lets build it in the middle of the country not London.

  • rate this

    Comment number 63.

    Why is this hub near London so "essential".... that the City Fat Cats can more easily jet off abroad on their jollies every year.....

    ....just check out the huge no.s of international transit passengers who could easily be transiting through any airport in the UK as they only stop to swap planes, not actually enter Britain.....

  • rate this

    Comment number 62.

    The new economic saviour a new airport or runway.

    dont make me laugh.

    it might help all the rich and the bankers flee more quickly when the public finally wake up to what is going on.

  • rate this

    Comment number 61.

    Heathrow needs to be closed and redeveloped. Houses prices will soar in the area due to there being no more noise pollution, so those who benefit from house price rises should be taxed to part fund a modern world class airport at Stansted. The argument about being close to London is irrelevant as modern dedicated transport from Stansted could match the journey time of the Heathrow Express.

  • rate this

    Comment number 60.

    Oh, Robert... "governments can reduce their expenditure and put up taxes" - OR the UK government can pass laws to stop money bleeding from the country to off-shore havens, make Philip Green pay taxes, get Vodafone to pay up, etc., etc...

  • rate this

    Comment number 59.

    surely the real problem is that the UK has no overall transport policy. What with road lobbies, rail lobbies and now airport lobbies, it is impossible to do the right thing for the people of the UK as a whole!
    I live within 35 miles of Hrow but not on the glide path so I don't have an axe to grind but I fly from Hrow 50 times a year and HATE it.
    You can't make a silk purse... etc.

  • rate this

    Comment number 58.

    How can Robert Peston perpetuate the myth that the UK's hub should be based in the SE? To succeed hubs need to offer secure, low cost, rapid, efficient transfers. By avoiding the high costs of land and labour; by freeing operators from existing restrictive airline agreements and by minimising environmental impact - sites outside the South East have considerable advantages. We need a viable UK hub.

  • rate this

    Comment number 57.

    A third runway will continue to prop up London's economy. How about we focus our efforts elsewhere and redistribute wealth around the country. After all, it is just as easy to fly from Aberdeen, Edinburgh, Manchester and Birmingham to Amsterdam/Frankfurt/Paris

  • rate this

    Comment number 56.

    Question about pollution at Heathrow.

    Is all the (noise and air pollution) from modern day aircraft trafficnecessarily worse than that existed in the late 50's/early 60's?

  • rate this

    Comment number 55.

    I see conflicting reports today on the news. One is that air pollution in London is unacceptably high, the second is that Heathrow is lobbying for a third runway. For the sake of the lives of people living in London, which is a huge number, any long-term airport expansion MUST be sited away from the city.
    Anything else makes no sense environmentally or financially. Why do people not see this?


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