Analysis by AEF shows economic impact of Heathrow runway likely to be minimal, or negative. Not £147 billion (over 60 years)
The Airports Commission has claimed,in its final report (1st July) and the media has uncritically repeated, that a new north-west runway at Heathrow would deliver up to £147 billion benefit for the UK (over 60 years). Now the AEF (Aviation Environment Federation) has done some critical analysis of the Commission’s various documents and figures, to elucidate what the actual economic impact on the UK economy might be. This is complex stuff, and making sense of the various facts (often in different documents at different dates) is not for the faint hearted. However, AEF shows that claims of £147 billion do not take into account the environmental or surface access costs associated with a new runway. The Commission’s own economic advisers have criticised the analysis (not done with the usual “WebTAG” model used by government) for double counting and questionable assumptions in relation to the indirect benefits associated with increased seat capacity. Using WebTAG, it appears – using the Commission’s own data – that there could be a net cost to the UK economy of – £9 billion over 60 years. Not a benefit at all, once all environmental and surface access costs are factored in. With some ‘wider economic benefits’ included, the benefit over 60 years would still be only £1.4 billion (not £147 billion), as quoted in the Commission’s own final report.
AEF briefings: Airports Commission’s climate and economic analyses
The Airports Commission has claimed, and the media has uncritically repeated, that a new runway at Heathrow would deliver ‘up to £147 billion’ benefit for the UK. But this figure is based on analysis that takes no account of the environmental or surface access costs of expansion. Indeed, the Commission’s own specialist economic advisers have criticised the analysis for double counting and questionable assumptions in relation to the indirect benefits associated with increased seat capacity.
The results generated by using the Government’s methodology for cost benefit analysis meanwhile, are dramatically different: the Commission’s own figures, based on this methodology, suggest that building a third runway at Heathrow would result in a net £9 billion loss to the UK once all environmental and surface access costs are included. With some ‘wider economic benefits’ included, the benefit over sixty years would still be only £1.4 billion, as quoted in the Commission’s final report.
In our briefing on the economic impacts of airport expansion, available to download below, we look at how the Commission has presented its analysis of the costs and benefits of a new runway.
We have also published our assessment of whether the Airports Commission addressed our earlier concerns regarding a ‘carbon gap’ in the Commission’s analysis.
Download AEF briefings:
Some extracts from the AEF report:
“The dominant narrative in the Airports’ Commission’s case for a new runway focuses on the economic benefit that it would bring to the UK, and the media presentation of the Commission’s work has largely repeated this storyline, quoting the Commission’s headline figure of ‘up to £147 billion benefit’ [link P 24] , with the addition that the environmental impacts will nevertheless make it controversial politically. But in fact the economic case for expansion rests on a highly selective presentation of the analysis undertaken by the Commission which gives a misleading impression about the strength of the economic case.”
“Alongside [the conventional “Webtag” which is the Government’s recommended methodology for assessing the costs and benefits of proposed transport schemes] the Commission also commissioned analysis using a methodology it describes as a “novel” approach to capturing possible indirect GDP and GVA benefits as a result of expansion. This “Computable General Equilibrium (CGE) model” relies on the assumption that aviation growth has ‘spillover’ effects in the form of increased trade, business growth, productivity improvements, and job creation. Among the papers published with the final report was a note [https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/438981/economyexpert-panelist-wider-economic-impacts-review.pdf ] from the Commission’s expert economic advisers providing comments on the Commission’s approach to estimating wider economic benefits. This welcomes the attempt to adopt complementary approaches alongside WebTAG but expresses a number of concerns about the findings generated by the CGE model.
too much weighting being given to the assumption that increased seat capacity will lead to wider benefits (for example in terms of increased trade), given that the direction of causality is in some cases unclear:
likely double counting between the direct and wider impact channels in the PwC calculations; and
inexplicable results, such as GDP impacts of more than twice the size of the direct welfare and wider economic benefit gains (while it might be expected that they would be lower).
The conclusion of the reviewers is that “While the content of the model itself has been well tested, the same cannot be said of the front end, where an increase in capacity is converted into an increase in trip-making, trade, tourism and finally productivity. Furthermore the interpretation of the result – what exactly do they mean and is their basis transparent – is an issue. Overall, therefore, we counsel caution in attaching significant weight either to the absolute or relative results of the GDP/GVA SCGE approach (PwC report) within the Economic Case”.
“Since WebTAG is the appraisal that Government guidance requires to be undertaken, it might be expected that the Commission’s WebTAG analysis would be central to its economic conclusions. In fact, however, the results were not included in headline figures or statements to the press and were instead presented in a table on page 147 of the Commission’s final report. These indicate that under a carbon cap (the ‘CC’ figure), the benefit of the recommended new Heathrow runway (in the third column) would be only £1.4 billion over sixty years. ”
[Also interesting information, on pages 3 and 4 of the AEF report, on gaps in earlier documents by the Commission that were finally filled in, in a letter to Lord Deben of the CCC on the day the final report by the Commission was published (1st July 2015). Also showing how some figures by the Commission relate to their “carbon capped” forecast and others to their “carbon traded” forecast. And they said the omission of calculations for the carbon capped scenario (as requested by the CCC) was problematic as the initial figures suggested that carbon costs would ‘dominate’ the appraisal. [That means the costs of carbon would be so high, that the runway would have a negative impact on the economy, rather than a positive impact].
Also by the AEF: