What’s wrong with infrastructure decision making? – report shows why decisions like Heathrow can be badly flawed
In a very interesting new study, entitled “What’s wrong with infrastructure decision making? Conclusions from six UK case studies” by the Institute for Government, some useful problems are shown up. In the case of the Heathrow runway, the study says – as with other bad infrastructure approvals – “poor investment decisions could lock the economy into inappropriate infrastructure systems for many years, with significant harmful effects on future prosperity.” … “Bad investments can result in white elephants – projects that waste public money and fail to deliver the promised economic benefits.’ The report says there is a serious problem in that government does not always identify the best investments. They say some of the reasons why government can make bad choices (eg. on Heathrow) are that there is no national strategy for infrastructure investment (no UK aviation policy); the more ambitious the forecast, the more questionable the model (seriously the case with crazy forecasts of alleged economic benefit for the runway); Ministers and senior civil servants can fail to understand project risk; Government finds it difficult to make decisions which create ‘concentrated losers’ (which is an immense problem for Heathrow with local impacts like air pollution, congestion etc, and noise impacts over hundreds of square miles); and no method to properly compensate people for the costs the runway would impose on them.
What’s wrong with infrastructure decision making?
Conclusions from six UK case studies
The UK needs to make a series of major decisions about the country’s energy supplies, rail network and airports, but weak processes are leading to the wrong projects and contested decisions, wasting both government time and taxpayer money.
This report argues that making decisions about infrastructure is one of the most important but difficult tasks for the UK government.
High-quality economic infrastructure – energy, transport, utilities and digital communication – supports successful economies. Well-chosen projects contribute to job creation and increased productivity. That is why the Government is planning £245bn of economic infrastructure projects over the next five years.
But poor investment decisions could lock the economy into inappropriate infrastructure systems for many years, with significant harmful effects on future prosperity. Bad investments can result in white elephants – projects that waste public money and fail to deliver the promised economic benefits.
The report also notes that not all infrastructure projects are equal. Looking at major decisions, from High Speed 1 to Hinkley Point C, it is clear that government does not always identify the best investments. This is a serious problem.
The report examines six large and controversial infrastructure projects: the Heathrow third runway, High Speed 1, High Speed 2, the Thames Tideway Tunnel, Hinkley Point C and the Jubilee Line Extension.
It finds there are six reasons why the UK struggles to make decisions on infrastructure:
- There is no national strategy for infrastructure investment.
- Government does not devote enough attention to assessing early options.
- The more ambitious the forecast, the more questionable the model.
- Ministers and senior civil servants can fail to understand project risk.
- Government finds it difficult to make decisions which create ‘concentrated losers’.
- Inadequate evaluation misses the opportunity to improve future projects.
Some sections relating to Heathrow are copied below:
3. The more ambitious the forecast, the more questionable the model. Uncertain
long-term forecasting may be used to green-light schemes which are costly and
difficult to deliver – as some have alleged was the case for the third runway at
Heathrow and Hinkley Point C. Detailed future economic analysis, particularly for
complex outcomes such as employment, investment and regeneration, is where
governments traditionally struggle. Criticisms of individual projects are often
driven by concerns about the robustness of their business cases. Despite these
concerns, successive governments have failed to communicate the inherent
difficulties of modelling large projects with long-term payoffs, and continue to put
more weight on these estimates than may be justified.
5. Government finds it difficult to make decisions which create ‘concentrated
losers’. Economic infrastructure has diffuse benefits and concentrated costs,
creating small groups of highly vocal ‘losers’ who are likely to oppose projects. The
drawn-out tales of Heathrow and HS2 indicate that a small number of influential
voices can seriously delay, or even derail, decisions. The history of our six case
study projects – particularly in the period between final analysis and the start of
construction – illustrates the problems governments have when deciding whether
to go ahead.
Heathrow runway expansion
The question of UK airport capacity has been considered many times since the 1968
Roskill Commission, yet progress has been slow and successive governments have
postponed the decision on where to give the go-ahead.9 When Theresa May’s
Conservative Government approved a third runway at Heathrow in October 2016, it
provoked a cabinet split and public criticism, on grounds of noise, environmental
impact, and the expense of the particular model chosen, which would pass
considerable costs onto airlines and passengers.
An air of uncertainty still hangs over the project; a public consultation is underway, to
be followed by a national policy statement (NPS) on aviation and a parliamentary vote.
Meanwhile, the only new runways built in recent decades have been at London City
and Manchester airports. London airports still rely on runways that have been in place
since the middle of the 20th century.10
Problems with the expansion of airport capacity in the south-east of England illustrate
the failure to create appropriate institutions and methods of serious engagement with
local communities, as well as to compensate them for the costs that large
infrastructure projects impose on them.11 The continued controversy (even after the
final report of the Airports Commission) also demonstrates the challenges of using
long-term forecasting to justify schemes that are costly and difficult to deliver in the
Case study: Heathrow third runway
The analysis that the Airports Commission undertook for Heathrow attempted to
forecast flight demand for the next 60 years. It did so using diverse datasets and a
highly complex set of models,82 using the Department for Transport’s own modelling
tools as a starting point.83
The conclusions of this modelling heavily influenced the Commission’s
recommendations. They predicted ‘a faster and more substantial increase in
passengers and destinations served at an expanded Heathrow than at Gatwick,
particularly in the long-haul market’.84 Overall, they assumed linear national and
international growth broadly in line with past trends.
However, the aviation market is notoriously difficult to predict. The economist John
Kay highlights that moving ‘from Orville Wright’s first flight in 1903 to the introduction
of the jumbo jet took barely 60 years’. The next half-century was less eventful but he
notes that ‘while the Roskill commission of the 1960s, which reviewed London airport
policy, got traffic growth projections broadly right, it did not forecast that the growth
would come from low-cost airlines offering point-to-point services’. Even the 2003 air
policy review ‘failed to appreciate how the centre of the world economy was shifting
east, and that Dubai would come to be the world’s busiest airport for international
passengers’.85 The Airports Commission’s assumption of such little disruption to
existing trends is, given recent history and the pace of technological change, risky.
* Sensitivity analysis establishes how much the value of a benefit would have to fall, or a cost would have to rise, to render a given option unattractive. It gives decision makers some measure of the uncertainty of analysts’ predictions.
The Commission’s base-case forecasts have already been shown up as inaccurate. It
predicted Gatwick would reach 40 million passengers by 2024, but the airport got to
41 million in May 2016.86 The Commission can hardly be faulted for inaccurate
predictions. All forecasts are, by their nature, doomed to inaccuracy. However, given
the divergence of demand from the Commission’s predictions in less than a year, it
looks unlikely that 60-year forecasts will stand up for long.
This uncertainty is often lost, or downplayed, in the policymaking process. In the
case of the Airports Commission, it initially set out a range of possible scenarios to
guide decision making and was even-handed about the range of possibilities.
These included a scenario entitled ‘low-cost is king’, in which growth in cheap air
travel accelerates and demand pivots from Heathrow to Gatwick.153 However, the
final report used only the starting point deemed ‘most likely’ for its analysis and
recommendations. Other scenarios disappeared.
and there is more, in this very interesting paper, at