UK Chancellor bets on third Heathrow Airport runway for boost to growth

Heathrow Airport's plan to build a third runway at London's main hub has been given a boost by Chancellor Rachel Reeves.

During a speech aimed at promoting growth for the UK and turning around the economy, Reeves said a third runway would bolster the country's long-term economic growth prospects.

"We cannot duck the decision any longer," she said. "The case is stronger than ever."

Reeves said the government was inviting proposals over its construction by the summer and that it would then make a full assessment.

"This will ensure that the project is value for money and our clear expectation is that any associated service transport costs will be financed through private funding," she said.

In her speech, Reeves insisted the runway will be "delivered in line with our legal, environmental and climate objectives".

Reeves' support for a third runway came in a wide-ranging speech on boosting UK growth rates, which have been historically low since the 2008 global financial crisis for a variety of reasons.

She also outlined plans for the building of nine new water reservoirs, pledged to create a Silicon Valley-like technology hub between the two university towns of Oxford and Cambridge, as well as a "reset" of the UK's economic relations with the European Union, five years after Britain left the bloc.

The Labour government badly needs growth rates to increase over the coming years, so it can lift living standards following the cost-of-living crisis and to get money into ailing public services, as well as reduce the UK's soaring public debt.

Something needs to be done for the economy

Since taking office in July, Reeves and Prime Minister Keir Starmer have been criticised for talking down the economy and for increasing taxes on business, a combination that critics argue have led to a growth downturn in the past few months and the sharp downturn in the government's ratings in opinion polls.

Although a third runway won't do much to bolster economic growth in the near-term, Reeves hopes that the announcement itself will provide investors with a signal that the government is serious about turning the economy around.

"We are not waiting for years into the future," she said. "We want to do things now, to turn around the performance, and we want to give businesses and investors confidence that this is a country to start doing things, to start making things in again."

It's been a while coming

A third runway at Heathrow has been discussed since 1946 in the aftermath of World War II, but has never got off the ground because of many reasons, including changes of government as well as legal challenges. Meanwhile, other European hub airports, have grown. Paris' Charles de Gaulle airport has four runways, while Amsterdam's Schiphol has six.

Heathrow’s plan to build a third runway - which has been under discussion since 1946 in the aftermath of World War II - received parliamentary approval in June 2018. It was subsequently delayed by legal challenges, and the Covid pandemic.

Heathrow chief executive Thomas Woldbye had previously said he would not continue developing the project without the government confirming that it wanted expansion.

Woldbye described Reeves' speech as "the bold, responsible vision the UK needs to thrive in the 21st century".

Some investor scepticism

Commenting after the speech, Lindsay James, investment strategist at Quilter Investors said: "Today's speech has also seen the re-emergence of plans to expand various UK airports, including Heathrow.

"It is debatable whether these airport developments are the right short-term target for growth and solving the UK's productivity puzzle, and it is likely to spark strong opposition. These would no doubt be long-term projects which could take upwards of a decade to complete, and we could wait even longer for any real economic impact. There also appears to be no public funding to help spur on the plans, and the approval process could be another hurdle.

"Instead, the focus should be on upskilling the labour market and improving labour mobility through both the tax system and planning measures."

Business supports plan but environment campaigners not happy

Business has long supported the creation of a third runway at Heathrow, which is operating at near full-capacity and which often means planes are left circling the capital before they can land.

Campaigners have for decades opposed a third runway on environmental concerns and Reeves' announcement is likely to face vociferous opposition, including from fellow members of the governing Labour Party, including London Mayor Sadiq Khan.

The construction of a third runway will mean the demolition of more than 700 houses and parts of the key M25 motorway will have to be moved into a tunnel.