Study shows serious flaws in economic analysis used to justify Heathrow expansion

February 15, 2008 at 4:24 am | Posted in Aviation, BAA, Business, CE Delft, DfT, Economics, Environment, Heathrow, Heathrow airport, Heathrow expansion, OEF, Reports | Leave a comment

A new report, The economics of Heathrow expansion was published yesterday, 14 February 2008, by CE Delft, “an independent research and consultancy organisation specialised in developing innovative solutions to environmental problems. The solutions CE Delft delivers are technologically robust, economically prudent, politically feasible and socially equitable.” Commissioned by HACAN, the study undermines the central argument in the Government’s case for Adding capacity at Heathrow airport.

The economics of Heathrow expansion illustrates a viable alternative, challenging the economic analysis presented by the Government. Proposals for expansion currently rely on figures provided in two reports by Oxford Economic Forecasting (OEF). These were commissioned by the aviation industry and used by the Department for Transport (DfT) to justify new build and a larger footprint at Heathrow to facilitate a doubling of passengers.

HACAN remind us:

In justifying a third runway the Department for Transport (DfT) cite a study by Oxford Economic Forecasting (OEF) which was funded, at least in part, by BAA.

The new report by CE Delft criticises the methodology used by OEF.

From CE Delft press release and key points summary:

1. CE Delft’s report casts doubt upon the Government’s estimate that expansion at Heathrow will bring economic benefits of £5 billion (over 70 years).

The Government estimate is based on the Oxford Economic Forecasting (OEF) reports of 1999 and 2006 which CE Delft shows to be seriously flawed. OEF significantly over-estimates the suppressed business demand that would be released by expansion at Heathrow.

CE Delft highlight this, saying: “We do not feel the OEF report provides a satisfactory justification for this assumption. While it may be true that adding runway capacity will to some extent encourage business investment and allow businesses to operate more efficiently, these wider impacts themselves need to be demonstrated by the OEF model, rather than being assumed from the outset and rather arbitrarily quantified in terms of additional business passengers.”

The OEF Report does not factor in the cost to the Exchequer of the taxbreaks the aviation industry receives each year.

CE Delft found that: “To give a truer account of the impact of aviation on the national budget, the figures for taxes and charges paid by the aviation sector could have been set against the subsidies and other forms of government support that are paid to the sector, something that the OEF report does not attempt.”

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