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New report undermines claims about economic benefits of airport expansion

A new report, published on 14th Jan, has undermined the central pillar of the Government’s case for a third runway at Heathrow – benefits to the economy. The importance of the study goes well beyond Heathrow because claimed economic benefits are the main justification for increasing airport capacity across the country. The government wants to more than double the amount of flying by 2030, despite the environmental impacts.

The study – “The economics of Heathrow expansion” – was carried out by research and consultancy firm CE Delft. It was commissioned by HACAN ClearSkies but, crucially, CE Delft is an independent not-for-profit organisation which has done work for the EU and others.

In justifying a third runway the Department for Transport (DfT) cites a study by Oxford Economic Forecasting (OEF) which was funded mainly by the aviation industry.

Speaking at the launch of the report former Conservative transport minister and candidate for Mayor of London Steve Norris said: “The Government is pushing ahead with plans for a third runway without really understanding what that means for the economy. It seems that the OEF report is fundamentally flawed and that by relying on it the Government are misleading us over the need for a third runway at Heathrow.

CE Delft’s main criticisms are:

  • OEF incorrectly assess the impact on direct, indirect and induced employment and therefore the additional runway’s contribution to GDP. If airport capacity were not expanded, people would find jobs elsewhere in the economy, possibly at lower wages, but still giving rise to indirect and induced employment. Therefore the employment figures provided cannot be used to substantiate a claim for expanding runway capacity.
  • OEF report at length on how aviation supports other parts of the economy. They do not account for economic activity which would happen without aviation. In any event, the benefits are poorly expressed compared to levels of trade.
  • Critical to the calculation of economic benefit is the additional business passengers generated by expansion of capacity. OEF assume high numbers of additional business passengers. For mixed-mode operation, for example, DfT’s own estimates are 0.5 million by 2015 whereas OEF assumed six times as many i.e. 3 million.
  • OEF estimate the economic impact to be about £400 per additional business passenger, or £120 over all passengers. This compares to a consumer surplus of about £30 per passenger based on the DfT’s own estimates of economic impact. It is implausible that the economic impact is many times greater than the value passengers themselves derive from flying.
  • Although not always stated explicitly, OEF estimates of economic impacts are often upper limits, so they indicate the maximum economic impact and not the most likely or plausible outcome.

For press release incorporating these key points see http://www.hacan.org.uk/resources/briefings/delft.press.release.and.key.points.pdf

For the full report, including an Executive Summary, see http://www.hacan.org.uk/resources/reports/4504.final.report.pdf

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