Gatwick Airport has offered to compensate nearby residents for the increase in aircraft noise that will result if the operator gets the go-ahead to build a second runway. Under Gatwick’s proposal, the just over 4,000 households that are exposed to aircraft noise levels of 57 decibels or above would receive annual payments of £1,000, roughly the average local Council Tax bill.

Gatwick should be praised for this initiative, which is a novelty in British aviation policy. In principle, compensation is exactly the right way to go. Done properly, compensation means internalising externalities, and moving from a winner-takes-all system to a system based on consent and cooperation.

Boiled down to the basics, the issue is simple. When an airport expands its activities, some people win (passengers, airport operators, airlines, staff), and others lose (residents). But if the winners’ gains outweigh the losers’ losses, the former could compensate the latter, turning the issue into a win-win situation. Nobody likes noise, but our dislike of noise is not infinite, and with appropriate compensation, most of us would be quite prepared to put up with it. Does that mean that the problem of noise externalities would be solved if all airports emulated Gatwick’s behaviour, and put up similar offers? Unfortunately, the answer is no. And here’s why:

The ability to offer compensation payments to local residents would fit seamlessly into a decentralised system of decision-making, in which the power to approve or reject an airport’s application for expansion rests with local residents or their local representatives. Yet within our current hypercentralised system of governance, compensation remains an alien element.

How can we know what monetary value the residents in the Gatwick area place on the additional noise that a second runway would entail? Is it more than an average Council Tax bill, less, or about the same? Asking people in a non-binding survey will not produce reliable information, and the judgement of ‘experts’ or self-appointed ‘voices of the community’ even less so. There is only one way to find out: make the residents an offer, and see what they make of it. Let them, and nobody else, decide whether they accept it or not.

At first sight, it looks as if Gatwick was saying to those living nearby: ‘Allow us to emit some more noise, and we will pay your Council Tax for you. Deal?’ But that is not how it works. Gatwick’s offer is not really an attempt to persuade local residents – those residents do not have the power to accept or reject the airport’s offer. It is, instead, an attempt to persuade Howard Davies’ Airports Commission, and ultimately, the government that will act upon the commission’s recommendations. What matters is not whether local residents agree with the proposal, but whether the government thinks they might agree, or at least, whether the government thinks they will make less noise (no pun intended) than the people who would be affected by alternative decisions.

Note that this is not a flaw in Gatwick’s compensation offer. Under the current system, Gatwick’s proposal is as good as it gets. The flaw is in the overall system of decision-making. We should give airports, and those affected by their operations, the means to work out a deal that benefits all sides. Politicians at the national level should not be involved in airport infrastructure decisions at all.

Dr Kristian Niemietz is the author of Depoliticising Airport Expansion.

Follow him on Twitter: @K_Niemietz


Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

3 thoughts on “Three cheers for Gatwick’s compensation offer, but now kick out the politicians and let local residents decide”

  1. Posted 14/03/2014 at 13:56 | Permalink

    A Land Value Tax would automatically balance all externalities caused by a changes in the spacial environment (as well as economic ones). In this case airports, but it would be most useful for new building.

    On the premise, new construction lowers HP’s, NIMBYS are compensated by lower liabilities, or if new construction raises the level of net amenity their liabilities increase (instead of being capitalised in to unearned higher HP’s).

    And of course the above works it NIMBYs block new construction. If their right to exclude raises land values, we are all compensated.

    With LVT it is the market that decides who is to be compensated and by precisely how much.

    And if Local Authorities are allowed to keep a % of revenues, planning can also operate on a market driven basis. ie revenue maximisation. They will have to balance providing and protecting amenities(demand) with attracting as many people into their constituency as possible(supply)

    Planning would become a straight cost/benefit analysis.

    This would also apply on a National level.

  2. Posted 14/03/2014 at 16:14 | Permalink

    “if Local Authorities are allowed to keep a % of revenues”
    -How about doing this the other way round: Allow local authorities to raise their own revenue, and leave it up to them how they do it. They could then opt for a LVT, although they would not have to. It is quite likely that many would, though, because the more local the tax system, the more you would have to go after immobile factors. The most immobile one being, of course, land.

  3. Posted 15/03/2014 at 12:44 | Permalink

    Kris, the LVT or local income tax question answers itself.

    All things being equal, people will go to where they pay least tax, everything else being equal. But that includes privately collected taxes as well, so you might as well say that people will go where rents are lowest. To sum up, people will go where rent + tax is lowest.

    (It is a secondary issue whether that is LVT or income tax or any other kind of tax).

    We know that the total rental value of a site is dictated by external factors and not how the rental income is split between tax collector and land owner. So the highest possible tax the tax collector can take without harming the economy is the LVT, if they try to get more than that by taxing earned income, turnover, business profits etc, then the economy in their area will fail, so even if they tax those things, they will have to be sure to collect no more than the rental value of the land in their area.

    So a sane council would always have LVT, nice and simple and does not drive people away from the area – the site rental value is the open market measure of what people are prepared to pay to live in that area or set up business in that area.

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