Airport expansion must be wrestled from government’s hands, argues new report

New report calls for a market mechanism to solve airport capacity issues
Government involvement in the debate on airport capacity is both unnecessary and undesirable. Ahead of the Airports Commission’s findings this week, new research identifies the danger of public sector involvement in investment decisions and shows that the constraints placed on air travellers by regressive government policies risk endangering the continuing growth of low-cost air travel.

In a new report, De-politicising Airport Expansion, Kristian Niemietz develops proposals for how to move the airport capacity debate out of the government’s hands. The paper proposes the abolition of either Air Passenger Duty or the EU Emissions Trading Scheme, and calls for the creation of compensation incentives and a broad decentralisation of the tax system.

The privatisation of airlines and airports has been a great free-market success story, yet the debate about capacity remains overwhelmingly political. This paper is a routemap showing how politics can be taken out of the equation, in favour of fiscal decentralisation, local autonomy and direct democracy, removing the need for an Airports Commission altogether.

Environmental problems are being over-solved by governments

  • The rise of air travel has been a great success of market forces. The spread of air travel to low-income workers is a particular success. 13.2 million leisure travellers reported incomes of less than £17,250 per year in 2011. If the sector is allowed to continue to expand, air travel amongst the less well-off will continue to flourish.

  • The UK desperately needs more airport capacity, yet environmentalist campaign groups, politicians and academics overstate the effect of airport expansion and flying on global warming and risk restricting the continued rise of leisure travel.

  • The problem of the global environmental costs of flying have already been fully solved, and in fact over-solved. Rates of Air Passenger Duty (APD) are higher than the social cost of CO2 and, additionally, emissions from flying are already capped because aviation has now been incorporated into the EU’s Emissions Trading Scheme (ETS).

  • Each of these measures, APD and ETS, would in itself be more than enough to solve the wider environmental problems associated with air travel. Their combination represents environmental overkill, or more aptly, the ripping off of UK passengers.

Removing politics from airport expansion decisions

  • To remove politics from airport investment decisions, airports need to be given a means to find an agreement with local residents affected by their decisions. A compensation mechanism should be fostered by policymakers. Creating such incentives would enable stakeholders to negotiate mutually beneficial agreements.

  • Airports should be allowed to ‘buy’ the right to emit noise from residents for a fee that they are free to negotiate. That fee would be compensation for residents having to put up with noise, and its level would reflect the strength of their aversion to noise.

  • A more radical solution would be to decentralise the tax system, to ensure that the tax revenue generated at and around an airport stays in the local area. The surroundings of large airports could become ‘tax havens’: airports would account for a large share of the local tax revenue, so residents could enjoy both low taxes and excellent local public services.

Commenting on the report, Mark Littlewood, Director General at the Institute of Economic Affairs, said:

“With the private sector raring to invest in airport expansion, it is patently clear that the government is creating a logjam at the expense of wider economic growth. A market mechanism is urgently needed to create a compensation mechanism for those that would lose out.

“Unless the government steps back from the capacity debate, the findings of the Davies Commission will be completely futile. We need a radical shift away from politics to ensure that the interests of passengers and the wider UK economy prevail.”

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Notes to editors:

The full report, Depoliticising Airport Expansion: Market-Oriented Responses to the Global and Local Externalities of Aviation, by Kristian Niemietz, can be downloaded here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

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