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Voodoo Economics

New Ground 64
Spring 2003

Why does the government want to give billions of pounds away every year in public subsidies to well-off people in order to promote a false market in aviation and build airports that we don’t need? Charles Secrett of Friends of the Earth debunks the economic myths of the pro-flight lobby.

From Cliffe to Cardiff, local communities are up in arms over proposals for an extra 320 million air travellers over the next 20 years by building the equivalent of six new airports the size of Heathrow. By 2020, airports will handle double existing passenger numbers; by 2030, triple. This crazy vision has no more chance of success than the doomed predict-and-provide approach of the 1989 White Paper, Roads to Prosperity.

Think of increased carbon emissions, health-threatening air pollution, wildlife habitat, land take and extra development, which are produced by airport expansion on such a grandiose scale. These trends, and the aviation policies which stimulate them, are unsustainable in environmental, social and, crucially, economic terms. The impending Aviation White Paper is make-or-break time for the sector.

It’s not only the usual suspects, such as SERA or Friends of the Earth, who think so. Late in 2002, the Royal Commission on Environmental Pollution categorically stated that no new UK airports should be built. The Sustainable Development Commission endorsed similar conclusions. The government appears to disagree, if official economic assessments are anything to go by.

The government commissioned Oxford Economic Forecasting (OEF) to measure the economic contribution of aviation. The 1999 study, mostly paid for by the industry, asserted that expanding aviation is critical to future economic health, and that £30bn would be lost to the UK economy by 2015 if passenger numbers are not allowed to grow beyond 1998 levels.

However, the study wholly discounted the distorting effects of aviation’s huge annual subsidy. It left out environmental and social costs of aviation. It ignored the fact that new jobs not created in aviation can be created elsewhere. And, having failed to prove a link between more flights and economic performance, the authors simply presumed the link was there! The OEF view remains the justification for business as usual: more airports, runways and terminals.

By contrast, the most authoritative study into transport effects on the economy and regional regeneration, the publicly funded SACTRA Report (also 1999), found no simple link between transport infrastructure provision and regional regeneration. Transport improvements redistribute economic activity, which may benefit one area at the expense of others. Non-transport factors, such as availability of skilled labour, are usually more critical influences on regeneration.

If existing tax subsidies remain in place, as OEF assumes, aviation companies will gain £17bn of tax give-aways every year by 2030. What government can justify wasting so much public money for so little public return, and so much damage to the common good?

Economic Myths About Aviation

• Aviation is a key driver of national economic performance. Hardly. The overall economic contribution of aviation is £10.3bn annually (1.4% of total economic productivity). The only operational tax the industry pays is Air Passenger Duty, which raises £1bn annually. If aviation paid full tax, the Treasury would gain £7bn extra revenue from fuel taxes and VAT on passenger tickets and new aircraft purchases. That’s the equivalent of 2p off basic income tax, or more spending on public services. Add in realistic prices for landing slots, instead of holding the prices artificially low, and you have the fiscal basis for demand management and revenue streams to boost sustainable transport infrastructure, machines and fuels.
• Business demand fuels growth in air travel and demand for new airports. Business demand is not the driver for expansion. While flying has never been cheaper, a majority of Britons (60%) do not fly each year. Some 75% of all passengers on low-cost carriers are from the top three social classes and almost all the forecast growth is in high-earning holidaymakers.
• Most international business is done by electronic communications. In 2001, just 9% of flights were for business and 24% of passengers were business flyers. This sub-group of travellers is predicted to grow to 30% of the total by 2030. This increase could be met from a limited expansion using already granted planning approval for new capacity at existing UK airports, to accommodate between 60 to 80 million extra flyers annually. High-speed rail links can connect us to Europe. Projected business demand does not require new airports.
• Make £500m available over three years to support recycling for every household.
• Allow local authorities to introduce "variable charging" for domestic waste. For example, households could be charged £1 for every "black sack" but credited £1 for every full "green box".
• The UK tourist industry depends on flying. Domestic tourism certainly does not. Fewer short-haul flights would mean more local demand for home-grown holidays. Some 80% of predicted future demand is for leisure trips. There already is an £8.6bn annual trade deficit in aviation tourism, the difference between the £17.7bn Britons spend abroad and the £9.1bn spent here by foreign visitors. How can the government justify annual £7bn hand-outs so Britons can spend £17bn abroad, when our rural economy is collapsing and British holiday resorts cry out for more investment and much-needed business? While foreign visitors concentrate on hotspots, like Stratford-on-Avon, British tourists visit all parts of the country. Cheap air travel is exporting jobs from Cornwall and Cumbria to Majorca and Malaga.
• The UK will lose investment and jobs unless airports expand. There is no evidence that airport capacity is the critical factor. North-east England has no flights to Japan, but has attracted significant new investment and jobs from Japan. The same is true for other regions outside the South-east. A macho variation on this assertion is the fear of London being "out-competed" by continental European hubs. London already has six international airports. In 2000, 116 million passengers used them; Amsterdam had 39 million, Frankfurt 49 million and Paris 73 million. Terminal Five will enable another 35 million passengers to dock at Heathrow.

The Way Forward

There is no universal human right to fly. Limits will have to be imposed in the skies, as on the roads. As with energy policy in general, more sustainable transport infrastructure, machines, fuels and operating and management regimes are needed. Markets should provide these choices, as well as investment, innovation and technical efficiency gains. This is green, sustainable economic growth. When markets don’t do this, it means that the policy framework, which sets market boundaries, is at fault and sending out the wrong signals for market forces to respond to. Government can sort out the transport mess by getting this policy, fiscal and investment framework right.

The object is to ensure that environmental limits, business opportunity and social provision are the basis of aviation policy. That requires serious pollution reduction, with "polluter-pays" taxes as incentives to develop clean fuels and efficient engines. It means developing continental rail and maintaining road systems to provide alternatives to short-haul flights. It means policy based on efficient demand management. It means cutting subsidies, and fair competition with more sustainable travel modes. The industry must clean up its act and pay its own way.

Flying is neither a basic need, nor a god-given right for people to demand at their convenience. These are economic and social truths that the Aviation White Paper must recognise.