Friday Blog: What is really stunting Britain’s economic growth – Heathrow, HS2, or neither?

Britain has become rather good at identifying the infrastructure project that will apparently unlock economic growth.

For years, it was HS2.

Then HS2 became too expensive, too complicated and, eventually, rather less of a national high-speed railway than originally envisaged.

Now Heathrow’s third runway is increasingly being presented as another piece of nationally significant infrastructure capable of unlocking investment, trade and productivity.

The argument received another boost this week when Heathrow lost its position as Europe’s busiest airport to Istanbul. Heathrow handled around 7.9 million passengers in July compared with Istanbul's 8.15 million, prompting the London airport to declare that the case for expansion had “never been clearer”.

But perhaps we are asking the wrong question.

What if Britain's economic problem isn't that Heathrow only has two runways?

What if it isn't that HS2 no longer reaches Manchester either?

What if the real problem is that Britain has become extraordinarily expensive, extraordinarily slow and extraordinarily uncertain when it comes to deciding what infrastructure it wants – and then actually building it?

That might be the more uncomfortable Friday thought.

Heathrow: gateway to growth or another enormous project?

There is an obvious economic argument for expanding Heathrow.

It is Britain's principal international hub and operates close to capacity. Heathrow says it currently connects the UK with more than 230 destinations and supports around £200 billion of annual trade. Its proposed third runway would ultimately allow the airport to accommodate as many as 150 million passengers a year.

The Government clearly sees an opportunity.

A consultation on the planning framework for expansion is currently under way, with ministers arguing that an expanded Heathrow could create more than 60,000 local jobs while improving passenger and freight connectivity.

And this week's comparison with Istanbul is certainly striking.

Istanbul has three runways capable of simultaneous operation, another coming, 24-hour operations and substantial room to grow.

Heathrow has two extremely busy runways surrounded by west London.

If Britain wants a globally competitive aviation hub, doing nothing indefinitely is hardly an inspiring industrial strategy.

But here's where things become more complicated.

Recent Department for Transport modelling paints a considerably less spectacular picture of the economic prize than some previous estimates. Government-commissioned analysis published this summer was undertaken specifically to examine the potential impact of Heathrow expansion on GDP, trade and employment.

Reporting on that analysis suggested the GDP uplift could be up to 0.05%, substantially below some earlier estimates, while the appraisal also identified significant environmental and social costs.

Heathrow disputes the more pessimistic interpretation. Its own case, drawing on Frontier Economics modelling, says expansion could increase GDP by 0.43% by 2050 and argues that around 60% of the economic benefit could occur outside London and the South East.

And therein lies the problem.

We're once again debating Britain's economic future through the prism of one enormous project.

We've been here before.

HS2 was supposed to change Britain's economic geography

Remember what HS2 originally represented.

It wasn't simply a faster train to Birmingham.

The real proposition was connectivity.

London, Birmingham, Manchester and Leeds would form the spine of a new high-speed network. Existing railway capacity would be released. Regional cities would become better connected to one another and Britain could begin tackling an economic geography overwhelmingly weighted towards London and the South East.

That was the transformational proposition.

A railway between London and Birmingham is still significant infrastructure.

But it isn't the same proposition.

And this is where the Heathrow versus HS2 comparison becomes interesting.

If Heathrow expansion principally strengthens Britain's international connectivity, completing the northern connectivity originally associated with HS2 was intended to strengthen its internal economic connectivity.

Britain arguably needs both.

There isn't much point being brilliantly connected to New York, Singapore, Dubai and Delhi if travelling efficiently between some of Britain's own major economic centres remains unnecessarily difficult.

Equally, creating superb rail links between northern cities doesn't eliminate the importance of connecting British businesses with international markets.

The choice between the two is therefore something of a false one.

Perhaps Britain's biggest infrastructure problem is Britain

Consider what repeatedly happens.

We announce something.

We consult on it.

We redesign it.

We consult again.

Governments change.

Priorities change.

Costs increase.

Parts are cancelled.

Replacement schemes are proposed.

More studies are commissioned.

Then everyone wonders why infrastructure costs so much.

HS2 has become the obvious symbol of that problem, but it isn't unique.

Heathrow's third runway has been debated in various forms for decades and remains in the pre-application stage of the Development Consent Order process. Another public consultation is planned later this year.

Whatever your position on Heathrow expansion, that tells us something.

Britain's problem isn't necessarily that it always makes the wrong infrastructure decision.

Sometimes it struggles to make a decision at all.

And uncertainty has an economic cost.

Construction businesses cannot confidently invest in skills and equipment for programmes that continually change.

International investors cannot build long-term strategies around infrastructure that may or may not exist.

Supply chains cannot develop efficiently around boom-and-bust procurement.

Communities spend years living beside proposed schemes without knowing whether they will actually happen.

And taxpayers eventually pay for much of that indecision.

Growth doesn't stop at Watford

There is another issue we shouldn't ignore.

Britain remains an unusually geographically unbalanced economy.

The debate about Heathrow therefore raises an awkward question.

Would Britain's next marginal billion pounds of infrastructure investment produce a greater economic return improving an already extraordinarily well-connected part of London, or improving connections between cities such as Manchester, Leeds, Sheffield, Liverpool, Newcastle and Birmingham?

That doesn't automatically make Heathrow expansion wrong.

Heathrow argues the opposite: that greater hub capacity benefits businesses across Britain by improving access to global markets, and it says expansion could support new domestic connectivity including Leeds Bradford, Teesside and Liverpool.

But critics of further investment around London increasingly question whether repeatedly strengthening the capital's infrastructure reinforces the very economic imbalance policymakers claim they want to address. That argument has become particularly prominent as the Government considers how to rebalance economic activity away from London's gravitational pull.

And that brings us back to HS2.

The economic argument for northern high-speed rail was never really about shaving a few minutes from a journey.

It was about creating economic agglomeration.

Connect labour markets.

Connect businesses.

Connect universities.

Connect airports.

Connect manufacturing clusters.

Give companies outside London access to a larger effective workforce and customer base.

That is the connectivity Britain still needs, irrespective of what the railway carrying it happens to be called.

Stop searching for the one project that creates growth

Perhaps this is the biggest mistake of all.

There isn't a single infrastructure scheme that fixes Britain's productivity problem.

Not Heathrow.

Not HS2.

Not another motorway.

Not another railway.

Infrastructure creates the conditions in which economic activity can happen. It doesn't manufacture productivity by itself.

Businesses also need affordable energy, skilled people, housing, digital infrastructure, access to finance and confidence that policy isn't going to fundamentally change every few years.

They need employees who can afford to live near their jobs.

They need goods that can move reliably through ports.

They need roads that aren't permanently being patched.

They need railways that connect the places people actually travel between.

And they need a planning and regulatory system capable of turning sensible proposals into physical assets within something resembling a commercial timescale.

So, Heathrow or HS2?

If forced to choose which represents the greater missed economic opportunity, I would argue that Britain's failure to improve connectivity between its major regional economies is the bigger structural problem.

A third Heathrow runway could unquestionably increase aviation capacity and improve international connectivity.

But Britain already has one of the world's great global cities and one of its great international airports.

What it has never successfully created is an economic counterweight to London on anything approaching the same scale.

Connecting Manchester, Leeds, Liverpool, Sheffield, Birmingham and Newcastle more effectively potentially changes the economic geography of the country in a way that adding another runway in west London may not.

But even that isn't the real answer.

The real growth constraint may be our inability to think about infrastructure as a network rather than a collection of megaprojects.

Road connects to rail.

Rail connects to airports.

Ports connect to distribution centres.

Housing connects people to employment.

Energy infrastructure connects investment to viable industrial sites.

Digital infrastructure increasingly connects everything.

Growth happens when those systems work together.

The Friday thought

Maybe Britain's infrastructure debate needs to stop asking:

“Which enormous project will deliver economic growth?”

And start asking:

“Why does it take us so long, cost us so much and create so much political pain to build the infrastructure a modern economy routinely requires?”

Build Heathrow if the economic, environmental and financial case survives proper scrutiny.

Restore northern rail connectivity because regional economies need it, whether or not the solution carries an HS2 badge.

Build roads where capacity or resilience genuinely requires them.

Maintain the infrastructure we've already got.

And, above all, create enough certainty that infrastructure businesses can invest for decades rather than electoral cycles.

Because Britain's growth problem probably isn't a missing runway.

And it isn't simply a missing railway to Manchester.

It may be the missing confidence that, once Britain decides something needs building, it is actually capable of getting on and building it.