Cabinet Doubts Over Development From UK’s Reeves Airport Plan

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(Bloomberg) – UK cabinet ministers are questioning whether the proposed expansion of London’s Heathrow, Gatwick and Luton airports will have an impact on growth targets, as disagreements erupt in government over Chancellor of the Exchequer Rachel Reeves’ growth plans.

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Britain’s finance minister is set to announce some or all of the controversial airport decisions on Wednesday in a speech on growth. Reeves called for a bigger Heathrow during an appearance on Sunday’s talk shows, with his strong yet positive sign that he was ready to green-light a controversial third runway at the UK’s biggest international airport.

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But the plans have divided Keir Starmer’s Cabinet and the wider party, with Labor figures raising environmental concerns about noise, air pollution and greenhouse gases. Some ministers also doubt that there is evidence such a move would bring about the desired improvement in the economy.

Criticisms include that the expansion of London Airport will crowd out growth in other regions, the benefits will be felt in the 2030s, and doubts that it will boost any economic growth, said a person familiar with the cabinet discussions, who asked not to be identified citing confidential matters. exchange.

With the economy in focus, Reeves is on a mission to show that the Labor government – in power since July after 14 years of opposition – is committed to boosting growth by accelerating housing and infrastructure projects from wind farms to airports. Starmer last week unveiled plans to ease legal challenges to major projects.

A government official said Labor ministers should support the core objective of economic growth, warning ministers with environmental concerns that opposing the policy would see them join the growth-blockers of the past.

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The pressure has intensified in recent weeks after a market correction pushed up borrowing costs, destroying the slim margin Reeves had in his October budget spending plans.

That’s the focus of an economic forecast prepared by the government’s financial watchdog, the Office for Budget Responsibility, dated March 26. If the OBR is found to be in breach of its finance law then daily spending will cover tax receipts in 2029. -30, he will have to adjust his plans.

However, if Reeves can convince the OBR that its measures now will boost growth ahead of its horizon, the watchdog’s outlook could improve. It can also be a strong signal for private investors.

“Where this really matters for Reeves is whether this sort of thing can convince the OBR to be more materialistically optimistic,” said James Smith, senior economist at ING. “Airports won’t be ready for years, but this is an immediate prize and it’s the chicken and the egg.”

The expansion of Heathrow with the construction of a third runway in particular has been controversial for a long time, and the last time it was voted in Parliament – in 2018 – eight members of the current cabinet voted against it, including Starmer and the current Energy Secretary Ed Miliband, the department in charge of climate policy.

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Asked by the Press Association if he would resign over the issue, Miliband said last week: “Don’t be ridiculous, no.” But Heathrow expansion opponent Sadiq Khan, the Labor mayor of London, said his views had not changed.

The government’s split reflects a split among economists over whether opening up the airport development could help deliver on Labour’s promise to boost the sluggish economy. While some question the global need for business travel post-Covid, others point to current energy constraints and the potential of low-cost airlines, particularly at Heathrow, the UK’s main hub for air travel and an important trade artery.

Reeves appeared to acknowledge the split between Heathrow, telling Sky News on Sunday that an announcement would be made “when it’s ready, with ministerial responsibility.” He also said that technological advances have changed the debate about the environmental impact of the third road.

“Sustainable jet fuel is changing the carbon emissions of flying, there is huge investment in electric aircraft and also a third runway would mean that instead of going around London, planes could land at Heathrow,” Reeves told the BBC.

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He is also supported by business groups. Expanding airport capacity is “critical to driving economic growth and remains a business priority,” British Chambers of Commerce Director General Shevaun Haviland said.

In 2016, a government analysis of a third runway at Heathrow calculated that it would create up to 77,000 local jobs over 14 years and benefit the wider economy to the tune of £61 billion ($76 billion) over 60 years. A Heathrow spokesman said any update to that analysis would be published if and when it chooses to go ahead with the project.

In the wake of the pandemic, doubts have been raised about the economic benefits and whether it will eliminate work across the country. While UK tourism returns to pre-Covid levels by 2023, business travel is still at 75% of 2019 levels, according to Office for National Statistics data. However, separate figures from the World Travel and Tourism Council in October predicted that annual spending on business travel to the UK by 2024 would reach a record $84 billion.

“We are very skeptical about how increased aviation will support economic growth,” said Chris Venables of the environmental research group Green Alliance. He detailed business travel, as well as the slowdown in air transport job growth and the decline in real wages.

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The Labor Mayor of Greater Manchester, Andy Burnham has also raised concerns about the potential expansion of London’s airport which could take a toll on growth. In 2020 the New Economics Foundation, a left-wing think tank, used Department for Transport data to argue that expanding Heathrow would move 27,000 jobs and £43 billion of output away from regions outside London and the South East by 2085.

A report last week by UK Day One – a non-profit, growth think tank – said that while the expansion of Heathrow would equally benefit the services sector in the surrounding area, the development of industry and manufacturing would be more felt elsewhere.

It also highlighted the economic benefits from cheaper and more reliable flights – saving £160 for the average family of four flying on holiday – and higher tax revenue that could be spent outside the South East. Frontier Economics estimated in 2019 that Heathrow’s “congestion premium” adds £34 to returns for short-haul flights and £217 for long hauls.

“Even if business travel patterns were to change permanently – of which there is limited evidence – Heathrow’s severe constraints would still allow for expansion,” the UK Day One report said. “Reversed, there have been consequences for the growth of the UK: the airport is arguably the busiest transport hub in the world.”

—Courtesy of Kate Duffy and Ellen Milligan.

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