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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