Why new runways are not the solution

Only a new hub airport can balance our aviation needs with those of the environment.

A quarter of all those in Europe who are affected by aircraft noise live under the Heathrow flight-path. If there is a single statistic which underlines the failure of British aviation policy it is this. For decades, a combination of powerful lobbyists and weak decision-making has led ministers to slavishly accept the hodgepodge expansion of Heathrow. There has been very little vision, and very little evidence-based policy making.

The previous Labour government, for example, decided to build a third runway at Heathrow, and only then asked the independent Committee on Climate Change (CCC) to figure out how the UK could meet its 2050 carbon reduction target. They didn't allow the facts to affect their policy. But the CCC did some very useful work, and calculated that, based on increased plane loads, new technology and fuel improvements, our carbon budget allows for about a 60% increase on current passenger numbers, bringing us to around 368 million passengers per annum. This is still a very large increase in the proportion of our carbon emissions due to aviation – the industry would emit 37.5MtCO2 a year by 2050. It is harder to decarbonise aviation than other sectors. But this 60% increase represents a lot of opportunities for new destinations and new travellers - within our carbon cap.

So, how much new capacity do we need to build to take us up to this limit? The answer is none. We can reach that 60% increase with no third runway at Heathrow, no new Thames Estuary airport, no second runway at Gatwick or Stansted. And Department for Transport forecasts suggest that we won't get to that point until about 2030. In particular, Gatwick is already expanding into new markets with routes to China, South Korea and Vietnam. Stansted is only around 50% full, and it makes no sense whatsoever to build a second runway at either. Indeed, rather than pushing for new runways, both airports are campaigning for rail links and improved surface access to help their growth, which brings environmental gains too: up to half of emissions from aviation actually come from surface movements, rather than the planes.

It’s clear that Heathrow plays a very important role - it is our only hub airport, and caters for transfer passengers, particularly business users, and that enables flights to emerging markets to become economically viable. It’s also true that Heathrow is almost totally full. While in the short term there are a few tools available to encourage flights to transfer to Gatwick or Stansted, if we are to retain a successful hub airport and all the benefits it brings, we need to look at longer-term solutions. Mixed Mode operation and a large increase in night flights have been proposed, but they fail the same test as the third runway - they affect far too many people who already suffer massively from noise pollution. And it has a huge effect on London’s air quality. Heathrow is, simply put, in the wrong location for our current needs.

Boris Johnson, I suspect for electoral reasons, recognises that Heathrow is not the answer. But his solution is perhaps even more wrong. Located east of London in the Thames estuary, 'Boris Island' would be largely inaccessible for anyone living outside London and the south east, making it even harder to spread economic growth to the north and west of the country. It would essentially be a transfer hub for foreign travellers (paying no APD) and the City. Before construction could even begin, you'd have to somehow move or defuse the remains of the SS Richard Montgomery, a wartime liberty ship whose detonation would cause a small tidal wave up the Thames and possibly one of the world's largest non-nuclear blasts. The chance of bird-strike is also 12 times higher here, let alone the crippling effect it would have on this vital migratory route. The RSPB claimed it would be one of the worst environmental decisions the country has made. Finally, the expense of this project would be astronomical and it would take far too long to construct. You'd have to start the infrastructure from scratch. It's simply not a goer, and I am delighted that I and the Lib Dems rejected it so promptly.

Is there a better option? We have to be clear that total UK aircraft movements in 2050 cannot be above the limit suggested by the CCC. So there is no point in building capacity which would allow us to vastly exceed that limit. Our 2050 carbon reduction target is not some figure that can be fiddled if a future government realises they can't meet it. The effect on our children's economy and their environment would be immense. We must not burden them with an environmental debt from which they cannot escape. But that still leaves us with a 60% increase in passenger movements which is allowed within UK carbon budgets.

For now, we can meet it with the runways we have, using the capacity at Manchester and Birmingham, for example, but it makes sense to consider the option of having a new hub, bringing together runways in one place to link with all the transfer passengers and new routes they bring to bear. That new hub could only happen with the closure of other runways and airports to ensure a future government doesn't exceed the available carbon budget. And this new hub couldn't be just anywhere - it would have to be accessible to north and south of the country, and be somewhere which would pose minimal impact to the local population and to the local environment.

The Labour Party is at best vague on this - they "accept the Government’s decision to cancel the third runway at Heathrow" - but fail to say whether they actually support it or don't - and many of their backbenchers (and frontbenchers) still argue for the third runway. They also argue for more expansion of aviation in the south east, threatening to breach our environmental constraints.

Some Tories, such as the Transport Secretary, Justine Greening, understand the need for environmental considerations to play a key role in aviation policy, in keeping with the Coalition Agreement, but there is a growing band of pro-third runway MPs, including George Osborne. Few seem to take Boris Island that seriously.

This autumn, the Liberal Democrats will vote on a conference motion that presents a proper policy to the public, outside of the vested interests in the aviation industry. The public deserve an airport policy which balances the benefits from aviation with the harm it can do to the environment globally and locally. That is exactly what we’ll deliver.

A British Airways aircraft taxis past other parked aircraft at Terminal 5 of Heathrow Airport. Photograph: Getty Images.

Julian Huppert is the Liberal Democrat MP for Cambridge.

Show Hide image

We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?