Critical analysis of the Airports Commission economic figures, by an Economics Professor, sent to Cabinet Members
An economics professor has assessed the claims by the Airports Commission, of huge benefits to the UK from a Heathrow runway – and found them to be very dubious indeed. He has written to members of the Cabinet, to express his concerns. Professor Len Skerratt (Brunel) believes the Commission has presumed unreliable indirect benefits to the UK national economy. He says there would not be an economic case for the 3rd runway without the supposed indirect benefits to the national economy. These wider economic benefits are said by the Commission to amount to some £131-£147 billion, between 0.65% and 0.75% of GDP by 2050. However, these predictions are not believable. There are only small predicted direct benefits, which could be as low as £11.8 billion (carbon traded model) or just £1.4 billion (carbon capped at the level suggested by the CCC). As the Commission’s own expert economic advisors (Mackie and Pearce) point out these appraisals rely on assumptions which are excessively optimistic. The Commission has gone to great lengths to quantify all the uncertain benefits, particularly the wider and often intangible economic and social benefits. Yet scant attention has been given to the certain tangible and intangible costs of serious damage to health, and quality of life in the very long term, and also the productivity loss, delays and annoyance caused by ten years of construction.
Summary of the report by Professor Skerratt:
Up to now discussion about the 3rd runway/airport capacity has focussed on the issue of whether the environmental and social costs are sufficiently small t to outweigh the economic benefits to air travellers and the wider UK economy.
We challenge this focus and argue that the 3rd runway is no great elixir which is needed for the UK economy. The economic case for the 3rd runway is weak, according to professional economists, including the Airport Commission’s own advisers.
The case is weak because:
- The modelling is untried
- The climate change aspects are far more serious than previously thought.
- The noise and pollution impact on those newly under the flight path are largely ignored
- The economic assumptions are excessively optimistic
- Workers would not gain much, since the predictions that assume that unemployment will be greater without the expansion are excessively pessimistic.
- Air travellers will not gain much, as they would face increased costs to pay for the runway
The only party to gain much is the shareholders of Heathrow Airport.
The full report is
Letter from Professor Skerratt to Members of the Cabinet
From Professor Len Skerratt (who works with Brunel University)
Acton, W4 LenSkerratt@yahoo.com
To: Members of the Cabinet of the UK Government
9 November 2015
The uneconomic case for a 3rd runway at Heathrow
Based on the views of leading and respected professional economists, I enclose a review , which you should find useful in your deliberations.
the Airport Commission’s own expert economic advisors Professor Mackie and Mr Brian Pearce conclude that “Overall, therefore, we counsel caution in attaching significant weight either to the absolute or relative results of the GDP/GVA S-CGE approach [of the] PwC report within the Economic Case. “
Professor John Kay, founder and former Director of the Institute of Fiscal studies concludes that “The commission relied heavily on an elaborate modelling exercise that calculated costs and benefits for the next 50 years. Little weight should be attached to these calculations.” and “You can safely disregard most of this convoluted analysis.”
1. Unreliable predicted indirect benefits to the UK national economy
The Airports Commission’s case for a 3 rd runway rests primarily on the supposed indirect economic benefits to the UK economy as a whole, calculated to be £131-147 billion. Mackie and Pearce advise that the model is one of the most ambitious attempts to predict economic impact and has not been well tested. Kay goes further and concludes that it includes an excess of detail, and above all suffers from a mechanical projection of the present into what is in reality a highly uncertain future – in 10 years let alone 60.
2. Excessive optimism, yet small predicted direct benefits
Optimism pervades the Commission’s report. UK annual growth is assumed to be 2.75% significantly more than the latest maximum 2% forecast of the OECD. Project overruns and surface transportation costs are seriously underestimated. The direct benefits just to the aviation sector, are forecast at £11.8 billion (if carbon emissions produced by Heathrow are mitigated) and £1.4 billion if carbon emissions are restricted to the levels suggested by the International Climate Change Committee. These are very small, especially in the context of the permanent environmental damage, and the 10-15 years of construction upheaval. Moreover, they appear not to be risk adjusted. Gatwick’s figures are £10.8 billion and £5.5 billion respectively.
3. Insufficient concern for carbon emission risks
Since the report was published in July 2015, there have been fresh stark warnings of the severe financial risks of climate change by both the IMF Chief Lagarde and UK Governor of the Bank of England, Mark Carney.
4. Major omitted costs
The Commission has gone to great lengths to quantify all the uncertain benefits, particularly the wider and often intangible economic and social benefits. Yet scant attention has been given to the certain tangible and intangible costs of serious damage to health, and quality of life in the very long term, and also the productivity loss, delays and annoyance caused by ten years of construction. Compensation for these is woeful, even if it is possible.
A decision is required that reflects “Not pounds and pence, plans and policies, but people.” (David Cameron, 2015).