Airports Expansion Debate: Key Decisions Ahead for London’s Airports

Prepare for critical developments. A significant challenge for the Labour government lies ahead regarding its policies on growth, the environment, and aviation competition: how much will Sir Keir Starmer permit the expansion of London’s five principal airports?

Two straightforward decisions have already emerged. In August, the government approved an increase in the annual passenger limit at London City Airport from 6.5 million to 9 million, although this appears largely symbolic since the airport managed just 3.4 million passengers last year, but it does indicate a pro-growth stance.

During last week’s investment summit, Transport Secretary Louise Haigh announced the £1.1 billion terminal expansion project at Stansted, which will raise passenger capacity to 43 million annually, up from 29.3 million in the most recent year. Despite the airport having secured planning permission for this project about a year ago, Haigh emphasized the government’s commitment to expansion, stating that “Transport is central to this government’s core mission of growing the economy.”

Messages have been less clear regarding Luton Airport, which aims to construct a new terminal as part of a £2.4 billion initiative, increasing its annual passenger limit from 19 million to 32 million. However, Haigh has postponed the decision on the development consent order for the second time to January next year.

A more significant decision is looming at Gatwick, which seeks to utilize its existing relief runway regularly. This £2.2 billion project could enable the airport to accommodate 75 million passengers by the late 2030s compared to last year’s 40.9 million.

Then, the most substantial issue on the horizon is Heathrow’s third runway, a project that has faced delays since 1968. During its last proposal in 2020, Heathrow aimed to boost its passenger capacity to at least 140 million, in contrast to the 82.8 million it projects for this year. The estimated cost of this project was said to be “£14 billion,” which many believe is a significant underestimate; some experts argue it could cost double that.

Will Labour approve all these expansions? Before the elections, Chancellor Rachel Reeves suggested she had “nothing against expanding airport capacity.” However, Labour has emphasized that all projects must meet four key criteria: adhering to noise and air pollution regulations, fulfilling carbon emission standards, and ensuring nationwide growth. While these schemes are privately financed, approving all five would add capacity for more than 120 million passengers—a staggering one and a half times the current capacity at Heathrow. Can Labour indeed reconcile such aggressive expansion with Britain’s commitment to achieving net zero by 2050?

Should the government choose not to approve all five projects, which should be prioritized? City and Stansted are moving forward. The proposed expansion at Luton promises to create 11,000 jobs in a region that requires economic support, in addition to addressing another vital issue: distributing the environmental impact across the capital, including the logistics of travel to and from various airports. This leaves the decision between Gatwick and Heathrow. Clearly, Gatwick emerges as the logical choice.

Utilizing its current infrastructure, a two-runway Gatwick could be developed at a fraction of the cost of Heathrow’s third runway, eliminating significant drawbacks such as displacing 750 homes, redirecting five rivers, and causing major disruptions along the M25 for years. Gatwick’s owners would not need to significantly raise landing fees to fund their project, and such an expansion would foster competition—unlike a third runway at Heathrow, which would solidify its monopoly.

However, Heathrow will likely contest this outcome vigorously. With the ownership situation still uncertain, CEO Thomas Woldbye has focused on maximizing the usage of its two existing runways, which could potentially handle 100 million passengers annually. As a compromise to Heathrow, could the government consider raising the current cap on flights, which is set at 480,000 per year, while delaying the costly third runway?

This would be a sensible approach. London can accommodate an additional 60 million passengers through existing capacities without the complications presented by a third runway, all while promoting economic growth and fairly distributing air and noise pollution throughout the capital. Labour should avoid revisiting a complex project that has remained unfulfilled for nearly half a century.

Goldman’s Interest Rate Predictions

Goldman Sachs has occasionally missed the mark with its forecasts. For example, during the 2014 World Cup, the bank predicted a 50% chance of success for Brazil, while calculating only an 11% chance for the eventual winners, Germany, who famously defeated Brazil 7-1 in the semifinals.

Now, it remains to be seen if the bank will misjudge again with its prediction that UK interest rates could fall to 2.75% by November next year—a substantial decline from the current 5%. The bank’s projections are based on five different analyses concerning the “neutral real rate of interest,” which is deemed challenging to calculate and represents a state in which the UK economy operates at full employment with 2% inflation. After utilizing various methodologies, including the “Laubach-Williams approach,” Goldman concluded that the Bank of England’s current rate is “notably restrictive,” and perhaps that’s true, especially when compared to Brazil’s 2014 performance.

Attention ‘Finfluencers’

Kim Kardashian is notably influential; she was recently fined $1.26 million by US regulators for endorsing a cryptocurrency without disclosing that she received $250,000 for the promotion. This incident hasn’t deterred the Financial Conduct Authority from interviewing 20 so-called “finfluencers” under caution. As FCA representative Steve Smart stated, “Finfluencers are trusted by their followers, many of whom are young and possibly vulnerable individuals attracted to their showcased lifestyle.” Fund managers can also be easily swayed by Wall Street bankers promoting overpriced stocks. However, they should exercise greater caution.