Transcript Economics Arguments

Economics Presentation
By Brian Ross,
Stop Stansted Expansion
The Policy & Planning Balance
• Local environmental impacts
• Climate change impacts
• Economic benefits
• Adverse economic impacts
Also, social impacts – positive and negative – but almost impossible to quantify
Economic Arguments – DfT
DfT methodology under review but presently includes:
• User benefits – Consumer surplus theory, based on value
of time for new and existing users and for foreign residents
as well as UK residents
• Producer benefits – Profits for airlines and airports
• Government revenue – APD
Less: Carbon costs and Capital costs:
Net economic benefit
However:
• No-one really understands DfT methodology
• Benefits accrued for 60 years post-completion
• Disregards HMT ‘Green Book’ guidance
• Illogical, discredited, unconvincing
Economic Arguments – Industry
Aviation industry emphasises:
• Jobs – but read Brendon Sewill*, Jeremy Birch and some basic
economics about opportunity costs and efficient labour markets.
• Need for business connectivity – but UK business accounted
for just 9% of UK air passengers in 2009 and are not price sensitive.
• Overseas tourists – but overseas tourists accounted for just 23%
of air passengers in 2009 and are only slightly price sensitive,
* ’Airport jobs: false hopes, cruel hoax’, Sewill, Brendon, AEF, March 2009
Our Economic Arguments
• Jobs: One man’s airport job is an eventual redundancy
notice in the domestic tourism industry. Over 2 million jobs
depend on UK tourism compared to 180,000 on aviation)
• UK plc: How does it benefit the British economy to help an
Irish airline which buys American planes in order to transport
millions of British people to spend their disposable income in
other countries?
• International competitiveness: So why is Japan, an island
trading nation like the UK but with twice our population and
twice our GDP, able to compete so well internationally with
so much less runway capacity than the UK?
So who’s right?
• 100 economists will have > 100 different opinions
• It’s not about winning a Nobel Prize for economic theory
– it’s about winning hearts and minds
• Our arguments must aim to convince the media,
politicians and other opinion formers, and the public
• We may need to be unashamedly tabloid in our approach
UK International Travel Deficit
£bn
NB: Excludes deficit on air tickets (£1.9bn in 2009)
Does the tourism deficit matter?
• Inward tourism = exports; outward tourism = imports;
• Balance of Payments must ultimately balance;
• Floating exchange rate – i.e. self correcting?
• No such thing as free lunch – ultimately either £ is
devalued or interest rates rise – or both;
• Why not a Queen’s Award for Imports?
• When we import goods and services we are exporting
jobs and investment - and vice versa
Outward vs Inward Tourism
60,000
= Outward visits
= Inward visits
50,000
40,000
30,000
20,000
10,000
0
1985
1990
1995
2000
2005
2009
UK Travel Deficit (£billion)
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1985
1990
1995
2000
2005
2009
Price Elasticity of Demand
UK Leisure
Foreign Leisure
= - 1.0
= - 0.2
Source – ‘UK Air Passenger Demand and CO2 Forecasts’, DfT, Jan 2009.
• In other words, if air fares increase by 10% UK leisure demand
will fall by 10% but foreign leisure demand will fall by only 2%.
•This effect is amplified by the fact that the UK leisure sector
is almost three times bigger than the foreign leisure sector.
•Thus higher air fares (e.g. As a result of higher APD can have
a very large dampening effect on outbound tourism and yet
hardly affect inbound foreign tourist numbers.
International Air Travel 2009
Purpose of trip
UK residents'
visits
abroad (‘000)
Holiday
Overseas residents'
visits
to the UK ('000)
30,458
7,685
Business
5,627
4,753
Visiting friends & relatives
9,592
7,203
980
2,439
46,657
22,080
Miscellaneous
Total
Source: Travel Trends 2009, ONS, Tables 2.07 and 3.07
Sterling Effective Exchange Rate
Source: Bank of England: 2005=100.
Long run price and income elasticities
Sector
Share of Elasticity of demand
passenger
with respect to
demand
Income Air Fares
2005
UK Business
8%
1.4
-
UK Leisure
29%
1.5
-1
UK Charter
16%
0.4
0.4
Foreign Business
6%
0.6
-
Foreign Leisure
International to International
Interliners
11%
0.7
-0.2
11%
0.7
-0.3
Domestic
17%
2.1
-0.3
Overall
100%
1.3
-0.5
Key Data Sources
ONS
Travel Trends, MQ6, Pink Book, Blue Book
HMT
Red Book, Green Book
DfT
Air traffic forecasts, SCAB spreadsheets
CAA
Airport statistics, Annual Passenger Survey