Insights

The impact of large infrastructure projects

With the government’s backing of a third runway at Heathrow and now the airport itself announcing expansion in readiness, it poses a wider question of how much do these large infrastructure projects benefit the economy and local communities?

A third runway at the UK’s busiest airport, which welcomes 80 million travellers each year at its four passenger terminals flying them in and out of the country from its two runways, has been predicted to create 100,000 jobs.

The creation of a third runway is expected to see flights currently capped at 480,000 a year increase to 720,000, the equivalent of an average 2,000 flights a day.

The airport’s chief executive Thomas Woldbye unveiled plans for expansion and upgrades including additional passenger facilities and an increase in capacity at terminals 2 and 5 as well as ‘work towards a third runway’. In his speech given at British Steel’s Scunthorpe plant, Woldbye specifically referenced the boost the plans would give to the steel sector.

Heathrow had already announced a £2.3bn investment package in December over the next two years. It included decarbonisation plans and a promise of contracts for businesses and SMEs nationwide.

However, large infrastructure projects will always be contentious. Take the Elizabeth Line, formerly Crossrail, work started in 2008 and when it opened it was at a reported cost of £19bn although it has increased London’s travel capacity by 10%. Crossrail 2 though, which would run from north to south, remains on the backburner despite racking up costs of £33bn with plans drawn and redrawn.

HS2 often hits the headlines for busting its budget. In 2011, HS2 was costed at £32bn but by 2013, it had escalated to £50bn. By 2019, government estimates came in at £80bn whilst the project’s spending has been criticised in several quarters especially since it’s a government funded company spending taxpayers’ money.

Its full economic impact has yet to be understood but figures from 2023 show how the project has boosted British business. Tier two subcontracts worth £7.9bn were awarded to over 2,000 UK-based companies with almost half (45%) going to SMEs which secured £3.6bn worth of orders. Meanwhile, reports last year estimated that the West Midlands would benefit from a £10bn economic impact with the arrival of HS2 over the coming decade.

By contrast, the privately funded Channel Tunnel which celebrated its 30^th anniversary last year has struggled financially.  This feat of extraordinary engineering was completed more or less on time but over budget - £9bn instead of the projected £5.5bn.

German political foundation affiliated with the German Green Party Heinrich-Boll-Stiftung provides an overview of the Tunnel’s financial obstacles and failings – it has never reached the projected 16 million passengers with 11.1 million passengers in 2019 before pandemic disruption whilst as a private company, it has scaled back services to help claw back losses. Report author Jon Worth described it as a project of ‘unfulfilled potential’.

Meanwhile, Richard Branson’s Virgin could well be the first operator to offer a competitor to Eurotunnel by operating services on the same track. Although many obstacles still remain including the need to upgrade St Pancras station to cope with an increase of passengers.

Quite how the third runway at Heathrow will transpire from costs to economic boost for British businesses and SMEs as well as local communities is unclear at this stage but as it’s on our doorstep with potential to encourage increased take up of commercial buildings across the board – industrial units, offices and warehouses - we will be watching with interest.