Politics may stand in the way of economics when it comes to airport expansion

Published

7 months ago

January 21, 2025

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It is no surprise to see a government that claims to be committed to making economic growth a priority giving the green light to expansion of Gatwick Airport and Luton Airport.

Nor, for that matter, would it be a surprise for a third runway at Heathrow Airport to be given the go-ahead by Sir Keir Starmer‘s government – particularly as Rachel Reeves, the chancellor, told the London Evening Standard in July last year that she had “nothing against expanding airport capacity… I want Heathrow to be that European hub for travel”.

Put in purely economic terms, airport expansion is a no-brainer.

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The economic case

The independent commission led by Sir Howard Davies, the former chairman of NatWest, and published as long ago as July 2015, concluded that “expanded airport capacity is crucial for the UK’s long-term prosperity”.

Gatwick, according to a report prepared for the airport by the independent economic consultancy Oxera, generated £5.5bn for the economy in 2023 and supported more than 76,000 jobs.

The airport’s owner estimates that expanding it to take annual capacity to 75 million by the mid-2030s, up from the £46.5m it hit in 2019, would create around 14,000 jobs and generate an extra £1bn a year in economic benefits.

Those numbers are difficult to verify – but it can be stated with confidence that anything which provides access to new markets for both consumers and businesses will be positive for growth.

Expanding the smaller Luton Airport would, similarly, be positive for growth.

The airport in 2019 – these pre-pandemic numbers are probably the most reliable given the upheaval of the last few years – is estimated to have supported 16,500 jobs in the local area and contributed £1.1bn to GDP. Expansion on the airport’s estimates creates up to 6,100 jobs and contributes an extra £900m to GDP.

Trumping them both, of course, is Heathrow.

The Davies Commission said that building a third runway to the northwest of the airport would provide for around 40 new destinations from Heathrow and would create more than 70,000 new jobs by 2050, adding some £147bn to GDP.

It stated: “Heathrow is best-placed to provide the type of capacity which is most urgently required: long-haul destinations to new markets. It provides the greatest benefits for business passengers, freight operators and the broader economy.”

It is worth noting that among the members of the commission was Sir John Armitt, the respected former chairman of the Olympic Delivery Authority, who is now chair of the National Infrastructure Commission.

His term of office was extended by Ms Reeves in October last year in order for him to oversee the 10-year strategy ordered by the chancellor and the establishment of the National Infrastructure and Service Transformation Authority.

He will be an influential voice in this debate.

However, while the economic case for airport expansion is unimpeachable, the bigger question, perhaps, is whether it is achievable.

Political considerations

Getting approval for the expansion of both Luton and Gatwick will be a major test of the new government’s commitment to overhauling planning regulations where they are an impediment to growth.

And here there are – for supporters of expansion – ominous signs.

A decision on whether or not to expand Luton was postponed for the third time just before Christmas so that Heidi Alexander, who had just succeeded the disgraced Louise Haigh as transport secretary, could be given time to assess the application.

Climate concerns

Tied into the planning hurdles are the inevitable environmental objections.

The Climate Change Committee, the government’s independent advisory body, has already said emissions savings would have to be made elsewhere in the economy were there to be a big expansion in airport passenger numbers.

The aviation industry will doubtless argue that it has already committed to becoming net zero by the middle of the century – but the environmental lobby has a long track record of successfully campaigning against airport expansion.

On top of that are the political obstacles.

Ms Reeves – and Ms Alexander, should she back expansion of Gatwick and Luton – will face implacable opposition from within their own cabinet, not least from Ed Miliband, the energy and climate change secretary.

Backing Heathrow expansion would be more controversial still.

Sadiq Khan, the London mayor, is strongly opposed to this and so are other senior Labour figures, among them Andy Burnham, the mayor of Greater Manchester.

He argues that a third runway at Heathrow would run counter to levelling-up proposals – although it is worth noting here that some of the UK’s biggest regional airports, such as Newcastle, support a third runway on the basis that it would boost international connectivity to their region.

That means leadership will ultimately have to come from Sir Keir Starmer who, it is worth noting, voted against a third runway at Heathrow in 2018.

Government unlikely to ever get credit

Supporting airport expansion is often difficult for governments – quite apart from the environmental objections and the inevitable planning hurdles – because it takes so long to add capacity and ministers are therefore unlikely to receive credit for it during their political lifetime.

For example, the two main airport expansion projects currently under way in Europe, the new Luis de Camoes airport in Lisbon and the new Solidarity superhub in Warsaw, are unlikely to be completed until the mid-2030s.

But the latter, in particular, highlights how other European governments have no hesitation in seeing airport expansion as a major generator of growth.

It is not alone. Amsterdam’s Schiphol Airport, an increasingly important competitor to Heathrow, is currently investing some €6bn in upgrades with the aim of expanding both passenger and flight numbers. Budapest, an airport once owned by BAA, the former parent of Heathrow and Gatwick, is looking to build a third terminal that would generate an extra three million passengers by the end of the decade.

These examples highlight how other European governments are less squeamish about putting airport expansion over environmental considerations in the name of pursuing economic growth.

You can be sure that the international investors who own Heathrow, Gatwick and Luton will be looking to the UK to do likewise.

Business

Tesla approves $29bn share award to Elon Musk

Published

2 hours ago

August 4, 2025

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Tesla approves bn share award to Elon Musk

Tesla’s board has signed off a $29bn (£21.8bn) share award to Elon Musk after a court blocked an earlier package worth almost double that sum.

The new award, which amounts to 96 million new shares, is not just about keeping the electric vehicle (EV) firm’s founder in the driving seat as chief executive.

The new stock will also bolster his voting power from a current level of 13%.

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He and other shareholders have long argued that boosting his interest in the company is key to maintaining his focus after a foray into the trappings of political power at Donald Trump‘s side – a relationship that has now turned sour.

Musk is angry at the president’s tax cut and spending plans, known as the big beautiful bill. Tesla has also suffered a sales backlash as a result of Musk’s past association with Mr Trump and role in cutting federal government spending.

The company is currently focused on the roll out of a new cheaper model in a bid to boost flagging sales and challenge steep competition, particularly from China.

The headwinds have been made stronger as the Trump administration has cut support for EVs, with Musk admitting last month that it could lead to a “few rough quarters” for the company.

Tesla is currently running trials of its self-driving software and revenues are not set to reflect the anticipated rollout until late next year.

Musk had been in line for a share award worth over $50bn back in 2018 – the biggest compensation package ever seen globally.

But the board’s decision was voided by a judge in Delaware following a protracted legal fight. There is still a continuing appeal process.

Earlier this year, Tesla said its board had formed a special committee to consider some compensation matters involving Musk, without disclosing details.

The special committee said in the filing on Monday: “While we recognize Elon’s business ventures, interests and other potential demands on his time and attention are extensive and wide-ranging… we are confident that this award will incentivize Elon to remain at Tesla”.

It added that if the Delaware courts fully reinstate the 2018 “performance award”, the new interim grant would either be forfeited or offset to ensure no “double dip”.

The new compensation package is subject to shareholder approval.

Business

Motor finance operators can breathe big sigh of relief

Published

2 hours ago

August 4, 2025

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Motor finance operators can breathe big sigh of relief

Bank stocks have enjoyed a boost as traders digest the Supreme Court’s ruling on the car finance scandal.

Some of the country’s most exposed lenders, including Lloyds and Close Brothers, saw their share prices jump by 7.55% and 21.62% respectively.

It came after the court delivered a reprieve from a possible £44bn compensation bill.

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Banks will still most likely have to fork out over discretionary commissions – a type of commission for dealers that was linked to how high an interest rate they could get from customers.

The FCA, which banned the practice in 2021, is currently consulting on a redress scheme but the final bill is unlikely to exceed £18bn. Overall, the result has been better than expected for the banks.

Lloyds, which owns the country’s largest car finance provider Black Horse, had set aside £1.2bn to cover compensation payouts.

Following the judgment, the bank said it “currently believes that if there is any change to the provision, it is unlikely to be material in the context of the group”.

The judgment released some of the anxiety that has been weighing over the Bank’s share price.

Jonathan Pierce, banking analyst at Jefferies, said the FCA’s prediction was “consistent with our estimates, and most importantly, we think it largely de-risks Lloyds’ shares from the ‘motor issue'”.

Bank stocks have responded robustly to each twist and turn in this tale, sinking after the Court of Appeal turned against them and jumping (as much as 8% in the case of Close Brothers) when the Supreme Court allowed the appeal hearing.

Concerns about this volatility motivated the Supreme Court to deliver its judgment late in the afternoon so that traders would have time to absorb the news.

Business

FCA considering compensation scheme over car finance scandal – raising hopes of payouts for motorists

Published

23 hours ago

August 3, 2025

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FCA considering compensation scheme over car finance scandal - raising hopes of payouts for motorists

Thousands of motorists who bought cars on finance before 2021 could be set for payouts as the Financial Conduct Authority (FCA) has said it will consult on a compensation scheme.

In a statement released on Sunday, the FCA said its review of the past use of motor finance “has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers”.

“Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way,” the statement continued.

The FCA said it estimates the cost of any scheme, including compensation and administrative costs, to be no lower than £9bn – adding that a total cost of £13.5bn is “more plausible”.

It is unclear how many people could be eligible for a pay-out. The authority estimates most individuals will probably receive less than £950 in compensation.

The consultation will be published by early October and any scheme will be finalised in time for people to start receiving compensation next year.

What motorists should do next

The FCA says you may be affected if you bought a car under a finance scheme, including hire purchase agreements, before 28 January 2021.

Anyone who has already complained does not need to do anything.

The authority added: “Consumers concerned that they were not told about commission, and who think they may have paid too much for the finance, should complain now.”

Its website advises drivers to complain to their finance provider first.

If you’re unhappy with the response, you can then contact the Financial Ombudsman.

The FCA has said any compensation scheme will be easy to participate in, without drivers needing to use a claims management company or law firm.

It has warned motorists that doing so could end up costing you 30% of any compensation in fees.

The announcement comes after the Supreme Court ruled on a separate, but similar, case on Friday.

The court overturned a ruling that would have meant millions of motorists could have been due compensation over “secret” commission payments made to car dealers as part of finance arrangements.

The FCA’s case concerns discretionary commission arrangements (DCAs) – a practice banned in 2021.

Under these arrangements, brokers and dealers increased the amount of interest they earned without telling buyers and received more commission for it. This is said to have then incentivised sellers to maximise interest rates.

In light of the Supreme Court’s judgment, any compensation scheme could also cover non-discretionary commission arrangements, the FCA has said. These arrangements are ones where the buyer’s interest rate did not impact the dealer’s commission.

This is because part of the court’s ruling “makes clear that non-disclosure of other facts relating to the commission can make the relationship [between a salesperson and buyer] unfair,” it said.

It was previously estimated that about 40% of car finance deals included DCAs while 99% involved a commission payment to a broker.

Nikhil Rathi, chief executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.

“We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”