A sideways look at economics
As government ministers are fond of reminding us, the UK is set to be the fastest growing economy among the G7 in 2016. But there is another comparative statistic that is more damning. If we rank the G7 economies according to levels of non-housing investment as a share of GDP, the UK is bottom of the heap – a position it has occupied for the past 20 years.
Those hoping for a government-led drive to raise the productive capacity of the UK economy might take heart from this week’s decision to approve the construction of a third runway at Heathrow, still Europe’s busiest airport. This was not a decision that was taken lightly. Permission in principle for the expansion of Heathrow was first granted more than 70 years ago, back in January 1946, shortly after the airport opened to passenger traffic.
Construction is not expected to begin in earnest for another four to five years. Work should be complete by 2026, at a total cost of £17.6 billion. But best laid plans often go awry, and UK infrastructure projects are certainly no exception. The expansion of the Thameslink rail line through central London was first proposed by the then British Rail back in 1991. Referred to initially as ‘Thameslink 2000’, the scheme has since been quietly rebranded simply ‘the Thameslink programme’ and is now expected to complete in 2018. The London Olympics, by contrast, were delivered on time. The alterative was unthinkable. But the budget overrun was substantial, with the final bill coming in at £8.8 billion, almost five times the initial estimate of £1.8 billion submitted by builders Arup back in 2003.
Will the Heathrow project have a material impact on UK productive potential? Perhaps not. Total expenditure of £17.6 billion spread over a five-year period would raise non-housing investment as a share of GDP by little more than 0.1 percentage points. However, while estimated costs are tiny in comparison to the size of the UK economy, we can at least be confident that they are likely to rise, substantially!