Reeves Tells Heathrow to Build ‘Badly Needed’ Third Runway

(Bloomberg) -- Chancellor of the Exchequer Rachel Reeves threw her weight behind a controversial third runway at Heathrow Airport, part of the Labour government’s effort to revive growth by waving through long-delayed infrastructure projects.

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Reeves urged the west London airport to submit a proposal that meets the government’s carbon emissions, air quality and noise pollution limits by this summer, with the aim of securing permission by the end of the parliament. She said the hub’s expansion, which has been touted since the early 2000s, was “badly needed.”

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“The case is stronger than ever,” Reeves said at a Siemens Healthineers AG facility in Oxfordshire, during a highly anticipated set-piece speech outlining her determination to turn around Britain’s flagging economy. “A third runway at Heathrow would unlock growth, boost investment and make the UK more open and more connected.”

Nigel Milton, chief communications and sustainability officer at Heathrow, said it was “ambitious but doable” given the government’s commitment to push through planning reforms. On that timetable, it would be possible to have a third runway in place by the mid-2030s, he said.

With growth stuttering and a slew of business and consumer confidence indicators turning red, Reeves is under pressure to turn the UK economy around, especially after coming in for criticism for her gloomy narrative about the state of the public finances in the run-up to the October budget. Standing at a podium bearing the legend “Kickstart Economic Growth,” Reeves advocated a menu of deregulation and unlocking planning decisions to lure investors and revive the UK’s moribund economy.

She received a vote of confidence later Wednesday, when Bank of England Governor Andrew Bailey said it was important for Britain’s growth rate to speed up, partly for the sake of financial stability. “So I’m very supportive of the work of the government,” Bailey said during a committee hearing of members of Parliament.

Nevertheless, there are splits within the cabinet and wider Labour Party over aviation expansion, particularly at Heathrow, with senior figures citing environmental concerns around noise, air pollution and greenhouse gases.

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The plans at Heathrow could create more than 100,000 jobs, Reeves said, citing a study by Frontier Economics that found it could increase GDP by 0.43% — yet some in the government doubt the extent to which the project would boost the economy.

London’s Labour mayor, Sadiq Khan, came out quickly with a statement reiterating his long-held opposition to a new runway at Heathrow, citing “the severe impact it will have on noise, air pollution and meeting our climate change targets.”

But Reeves insisted the UK doesn’t have to choose between its climate goals and pursuing growth, saying “there is no trade-off between economic growth and net zero, quite the opposite.” She described the drive to eliminate carbon emissions as “the industrial opportunity of the 21st century,” stating that “Britain must lead the way.”

Construction of third runway at Heathrow has been discussed by successive governments for more than two decades, and after being green lit by Theresa May’s Tory administration in late 2016 and approved by the House of Commons in 2018, the plan became embroiled in legal disputes as environmental campaigners and Khan sought to block the project.

While Heathrow emerged victorious, there is currently no outstanding application for a so-called development consent order for the project and the process of gaining approval and building it is likely to take several years.

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Costs

There have also been doubts over the supply of labor and materials needed for Heathrow’s third runway, as well as other major infrastructure projects and the building of millions of new houses. The Home Builders Federation said the industry has the labor required to meet current levels of development and could invest in more people if it was convinced by Labour’s supply-side reforms.

Ryanair CEO Michael O’Leary said earlier this week that the third runway “may or may not be delivered in my lifetime — I wouldn’t hold my breath.” Its rival EasyJet welcomed Reeves’ announcement Wednesday, while Surinder Arora, chairman of the Arora Group which owns hotels around the airport, said it was “great news” but warned that airlines and passengers must be protected from rising costs.

“At Heathrow we have become the most expensive airport in the world,” Arora told Bloomberg Radio. “We can’t continue doing that.”

Campaigners against the third runway hit back at Reeves’ comments, with the No 3rd Runway Coalition saying it was “eye-wateringly expensive” and involved demolishing the surrounding villages. Meanwhile, the Green Alliance warned that the economic case for bigger airports is “highly questionable” in the face of the UK’s climate goals.

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Heathrow welcomed Reeves’ support, with Chief Executive Officer Thomas Woldbye saying that successful delivery will require policy changes and regulatory reform. “Once built, it would create jobs and drive trade, tourism and inward investment to every part of the country,” he said.

Oxford-Cambridge

The support for Heathrow was the final flourish of Reeves’ growth speech, which also included plans to boost the Oxford-Cambridge region and reform Britain’s planning system to remove barriers to investment.

The chancellor has been seeking to win back the support of the business community after her budget on Oct. 30 sparked anger with its £40 billion ($49.7 billion) of tax rises, including a major increase in the national insurance payroll tax levied on employers.

She’s also been hit by a wave of bad economic data in recent weeks, with key surveys showing jobs being lost and private sector activity stagnating.

“Today I will go further and faster in kick-starting economic growth,” she said. “Growth will not come without a fight.”

In her speech, Reeves:

  • Highlighted upcoming decisions about expansions of two other London airports, Luton and Gatwick, and said she’ll work to re-open a shuttered airport in South Yorkshire.

  • Said she’ll fund rail links in the Oxford-Cambridge arc, and also deliver new homes, towns, reservoirs and road upgrades in the region, in an effort to boost the economy by £78 billion.

  • Backed a regeneration project at Old Trafford, centered around a new stadium for Manchester United and including residential and commercial buildings

  • Announced rail connection upgrades between Manchester and York via Leeds

  • Said net migration will fall but she will look at high-skilled visa routes

  • Said she’d remove barriers to deliver 16 gigawatts of offshore wind

While Heathrow has yet to apply for permission to proceed, both Gatwick and Luton have pending applications for development consent orders, with decisions due by Feb. 27 and April 3 respectively. Technically those are quasi-judicial decisions that must be made by Transport Secretary Heidi Alexander.

The plan at Gatwick would take an existing second runway into full-time use, while the Luton plan involves using the existing runway to handle more flights, expanding the existing terminal and building a new one.

--With assistance from Kate Duffy, Alex Wickham, Ellen Milligan, Caroline Hepker and Andrew Atkinson.

(Updates with detail throughout including Bank of England quotation.)

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