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The UK House of Commons is about to vote on proposed Heathrow expansion today, for which the UK government has reportedly promised No cost to taxpayers. According to an article in the Financial Times, the cost for the expansion itself is estimated at £16.5 billion (not including £2bn–£3bn financing costs) and another £10 billion for improvements in other surrounding infrastructure, totalling £26.5 billion. The Financial Times article states that what puzzles onlookers is how these astronomical sums will be paid for.

Expecting private companies to finance a £26.5 billion infrastructure investment with no cost to taxpayers appears, to put it mildly, optimistic; it supposes the entire cost + financing can be met by existing profit margins or profit growth due to increased capacity.

Has the UK Government published any statements where those costs are broken down with commitments from private parties that

  1. They will pay all of it (including cost overruns), and
  2. They will not transfer the cost to customers (who have a large overlap with UK taxpayers) through ticket prices or otherwise?

See also: Is the imminent Heathrow expansion decision conditional upon private parties finding financing?

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    I think that there's a problem with premise (?) number 2. Customers =/= 'taxpayers'. There will be customers who are not UK taxpayers (in the sense of not paying income or capital gains taxes, or by virtue of not being from the UK), and there will be UK taxpayers who aren't (directly) customers of Heathrow. – owjburnham Jun 25 '18 at 11:19
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    The promise is obviously that it won't cost money to taxpayers qua taxpayers, i.e. through their taxes. Whether they are also customers and will generally be better off is neither here nor there from this perspective. – Relaxed Jun 25 '18 at 13:34
  • @Relaxed Ok, fair enough. This is what the BBC reported and I don't know the literal promise of the government, but they have also said airport fees must not go up. – gerrit Jun 25 '18 at 13:49
  • @gerrit That does seem doubtful even if I would assume any airport extension project (even one funded entirely by the state) to be based on optimistic predictions of increased traffic so there is definitely extra money coming in even without increasing the rates. – Relaxed Jun 25 '18 at 13:54
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    Maybe they're going to make Mexico pay for it? – Kevin Jun 25 '18 at 18:13
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Has the UK government stated how Heathrow expansion will be financed?

See Policy paper, Heathrow north-west runway economic regulation: financing and affordability explanatory briefing, Published 21 June 2018


[Investors in the business that owns the airport] will pay all of it (including cost overruns)

The policy paper says

The proposed Airports National Policy Statement (NPS) states an applicant should demonstrate in its application for development consent that: “its scheme is cost-efficient, sustainable and seeks to minimise costs to airlines, passengers and freight owners over its lifetime”. This will be considered by the examining authority.

Note that EU rules can restrict or prohibit state-aid for large airports.

If I understand it correctly, the EU's Market Equivalent Operator Priciple (MEOP) prevents governments investing more in airport infrastructure than would be available to private companies to do the same thing themselves.


They will not transfer the cost to customers (=taxpayers) through ticket prices or otherwise?

Airline customers are not the same thing as UK taxpayers.

Heathrow Airport is subject to economic regulation by the CAA ...

The CAA has set out in its April 2018 consultation that there are credible scenarios in which capacity expansion can be financed and delivered affordably, with airport charges per passenger remaining close to current levels in real terms

We should remember, the purpose of all commercial businesses is, in the long term, to recover from its customers a greater sum than its operating costs. This shouldn't be surprising to anyone.

The idea here is not that the existing 78 million passengers currently using 98% of Heathrow's 2 runway's capacity should pay more each time for the privilege of looking at an unused third runway as they land/take-off, but that there should be tens of millions of additional passengers each paying (via airlines) roughly the same in landing fees.

More passengers x same fees = larger revenue = ROI.

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  • @BenMz That isn't necessarily true for two reasons. (1) the EU withdrawal bill means that EU law will take effect in the UK until it is repealed on a case by case basis (2) depending on what kind of deal the UK makes, it could end up agreeing to be bound by some, or much, of EU law. – JBentley Jun 25 '18 at 23:55
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Expecting private companies to finance a £26.5 billion infrastructure investment with no cost to taxpayers appears, to put it mildly, optimistic; it supposes the entire cost + financing can be met by existing profit margins or profit growth due to increased capacity.

I know very little of the specifics of this plan but this (having private companies finance huge infrastructure projects) has actually become pretty common under the guise of public-private partnerships.

There are many different flavours of it but the basic idea is that the state provides guarantees and a guaranteed stream of income through a 20+ year contract to an operator. The operator then turns to the financial sector to fund the project, buys equipment, hires employees, etc. It's relatively easy for the operator to finance themselves (there are none of the risks associated with the company's own investments or the launch of a customer product).

For the state, the main benefit is the lack of upfront costs and additional debt on the books, it only provides guarantees to the operator. There is obviously additional overhead and a margin for all the private businesses involved but it is not paid by the state or taxpayers directly, it's absorbed by the users through tolls and fees.

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  • I know about this model, but for £26.5 billion? – gerrit Jun 25 '18 at 13:38
  • @gerrit No me neither. Wikipedia has the total volume of PPP in the EU over the 1990-2009 period at €260 billion so compared to that, Heathrow expansion would be one very large project indeed. To be honest, I can't even name a large infrastructure project that would cost as much off the top of my head. Irrespective of funding, the most ambitious recent infrastructure projects I am aware off (Gotthard base tunnel, Galileo global localisation system, high-speed train lines in France...) all cost less than €10 billion apiece. – Relaxed Jun 25 '18 at 13:50
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Firstly, Heathrow is a private business. Its major shareholders are listed on that wiki page. According to the FT the plan is to raise that money through secured credit; £14bn is a lot, but given that the owners include Qatar I think they can find it from somewhere.

The most recent net income number I can find for Heathrow is £163m. Naively we could say that adding a third runway would add another 50% to that, bringing in £80m a year, which is 1/175 of that £14bn? That doesn't sound like a fantastic investment.

The cost absolutely will be transferred to customers, that's kind of the whole point of it.

The remaining £10bn of travel upgrades will be paid for by TfL. That's almost certainly going to include some taxpayer money, plus some local government money from London, and the rest will come from future fares.

"No cost to the taxpayer" is almost certainly not going to turn out to be true, as you expect. They'll probably argue that it doesn't count since this isn't for the airport, just the necessary transport upgrades.

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    It would be great if you added more than 1 source. Your conclusion is tenuous at best. – Tim Jun 25 '18 at 22:42
  • Net income isn't the number you should be looking at. Ideally, adding a third runway should increase gross income by 50%, without increasing (non-construction) expenses by 50%, resulting in a much-greater-than-50% increase in net income. – Mark Jun 26 '18 at 0:10

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