Heathrow Runway 3 will leave UK £5 billion worse off

A new and comprehensive analysis, using Social Return on Investment, published today, Monday 19 April 2010, by independent think-tank nef (the new economics foundation), concludes that a third runway at Heathrow would leave society worse off by £5 billion.

Researchers at nef used the same economic modelling program as the Department for Transport (DfT), but updated the input data on economic growth rates, exchange rates, carbon prices, fuel prices and other variables. They also estimated the costs of a new runway to the local community near Heathrow.  This included re-visiting the DfT’s estimates for noise disturbance and air pollution, and for the first time, calculating the cost of additional surface congestion and community blight.

The resulting report Grounded: A new approach to evaluating Runway 3 reveals that:

• A third runway at Heathrow would leave the UK £5 billion worse off. nef's estimate reverses the DfT’s prediction of a £5.5 billion net benefit.
• The £5 billion cost estimate includes negative impacts on the local community valued at £2.5 billion. The DfT’s analysis suggested an equivalent cost of only £0.4 billion.

nef’s report describes problems around establishing the economic benefits of a third runway. This has been recognised by business leaders, as reflected in a letter to the Times on 4 May 2009 and in a forward to the report written by Ian Cheshire, Group CEO of Kingfisher plc, parent company of B&Q: “This new report…establishes robust, well-rounded evidence for what many in business and civil society have suspected all along – that the case for a third runway at Heathrow is at best incomplete and at worst completely flawed… By taking an approach based on Social Return on Investment (SROI) analysis, nef has produced a more rounded and realistic analysis of the costs and benefits of Runway 3.”

In addition, the report presents the formidable environmental hurdle faced by proponents of a third runway because of the climate change impacts of air travel.  Aviation policy clashes with objectives for sustainable development, particularly for tackling climate change.  The government’s 2050 target for maintaining aviation’s emissions of greenhouse gases at 2005 levels, rather than demanding cuts as for other sectors, means that all other uses of fossil fuels – for heating and road transport for example – will have to be reduced much further.  As it is the well-off who fly, even on budget airlines, this means the burden of emissions reduction is shifted from the rich to the poor.

“With such high social and environmental costs associated with Runway 3, the burden of proof should lie squarely with those who are in favour of the expansion. It’s up to them to demonstrate that Runway 3 is in the public interest. With a rapidly diminishing timeframe in which to tackle climate change it is imperative that we allocate our carbon budget in the most efficient and equitable way, and to schemes that will create the most social value. This must surely be the test for any proposed infrastructure project in the future.” said Helen Kersley, co-author of the report.

nef recommends a new course of action for Heathrow:

• Official support for a third runway should be withdrawn. This analysis further discredits the decision to proceed with the third runway proposal.
• A thorough examination of alternatives to aviation is required to ‘future proof’ the UK economy.  Instead of assuming an expansion of aviation is required, we need more robust analysis of the costs and benefits of alternatives taking into account the UK’s transport needs and priorities for sustainable development. Alternatives such as investment in video-conferencing and improved rail networks would also contribute to relieving the congestion at Heathrow.
• Future aviation expansion plans should be appraised in relation to the social value they are likely to generate. This should involve meaningful engagement with stakeholders to determine where value is being generated and more thorough research on costs such as noise and air pollution.

In addition, the report suggests that new thinking is required on how we appraise infrastructure projects more generally. It recommends that greater account is taken of their impact on inequality, as the costs and benefits are often unevenly distributed. Finally it highlights the importance of independence and transparency in how decisions are reached. In this instance, official claims were made for Runway 3’s impact on jobs and growth that could not be substantiated by the evidence. It calls for greater effort in communicating complex economic findings to the public.

“This report is about more than the third runway, or indeed aviation. Historically governments have often overplayed the economic arguments in favour of big infrastructure developments such as airport and road expansion. Many countries are strewn with ‘white elephants’ - costly development schemes of highly questionable value that began life with the force of apparently robust economic argument behind them.” said Eilís Lawlor, co-author of the report and head of the Valuing what Matters programme at nef.