Chamber of Commerce gets its sums wrong


Business leaders are supposed to have a head for figures, and certainly pretend to be  anti-ideological and just dealing with facts (when they aren't giving 110% that is). So why did the British Chamber of Commerce put out a report yesterday which massively overstated the case for the third runway?

The BCC are about as unreformed as capitalists get; never happier than when they're plundering our future and ferretting the proceeds into offshore bank accounts. But their report, entitled 'Why destroying Sipson and Harmondsworth will make me millions', makes a number of very basic errors which a GCSE media studies student would have been failed for. Stand by for a techie, economics-jargon filled discusion of monetised benefits...

Firstly, the BCC report claims £30bn benefits from expansion, but forgot to include any costs. This includes the cost of climate change, noise, air pollution, and congestion and is a bit like saying asbestos is great at stopping fire without mentioning that is also highly toxic. It also means that the report failed to take into account the value of time lost by executives sitting in traffic on the M4 and M25 as they try in vain to get to the airport (see below).

Secondly, those £30b benefits are predominantly aggregated time savings, not actual money. To work this out, the BCC has worked out how many people will save how much time once the runway is built and multiplied that by the value of each minute they're saving. Famous critic of time saving valuation John Adams once worked out that the best place to put London's third airport, given the extent that economic benefits favour time savings, was Hyde Park. However BCC has gone further, using a figure which is 40% higher than the Department for Transport uses. I know business leaders have inflated sense of their own worth, but that's ridiculous.

Thirdly, they calculated the relationship between economic growth and investment in infrastructure according to the figure in the Eddington report, of 0.2% increase in GDP per 1% increase in capital spend. Never mind that Eddington was the former head of British Airways and trying to justify airport expansion; this figure has always sat at odds with the most comprehensive study of infrastructure investment, the Standing Advisory Council on Trunk Road Assessment (SACTRA).

The 1990s studies by SACTRA found that there was little or no link between investment in infrastructure and economic growth. If you can force yourself to read 300+ pages of economic-speak, you'll discover that: non-transport factors in a region (such as the availability of skilled labour) were usually a more critical factor in regenerating a region than transport infrastructure, and there would be winners and losers when new transport infrastructure was built - competitive areas may gain improved access to weaker areas, which in turn may suffer job losses.

Next the BCC made loads of claims about the benefits of transfer passengers. Former BA boss Bob Ayling dismissed this, saying that transfer passengers only benefit the economy by buying a cup of tea and a biscuit. CE Delft challenged the view that, if Heathrow does not expand, firms will locate to other cities in Europe which have large and expanding airports:

"Although the access to good aviation links is one of the location factors for new companies, it should be noted that currently London is already ranked number 1 for its transport links with other cities and internationally. Notably, the impact of the location factor ´access to air services´ is of greater importance with regard to companies’ decisions on where to invest within the UK, than on the decision regarding the country in which first to locate……. One may ask oneself the question what additional effects could be expected from further adding to the capacity of the airport."

Finally, the BCC forgot an age old adage of economics: people like to spend money. Their report assumes that if we can't buy an airline ticket, we'll hoard our money under the bed and never, ever spend it. This is nonsense of the first degree: if flights to the Bahamas are too expensive, we'll go to France or Italy (or Blackpool) instead. CE Delft: "It is clear that the money currently spent on aviation would be spent in alternative ways in other sectors if there had been no aviation, or in case of restrictions on runway capacity. Thus it would also contribute to GDP and employment, and have indirect and induced effects."

So dodgy facts, omissions and outright untruths: pretty much what we've come to expect from the aviation industry. And to think that the authors of this report are the very people the Government keeps going to for economic advice. Could that be why we're in such a bloody mess?