The environment is paying the price for bad economic advice

Back in the 1940s US president Harry Truman bemoaned the tendency of economic consultants to provide inconclusive advice ​‘on the one hand’ and ​‘on the other hand’. Rather than face the complexities and uncertainties of modern economics, Truman asked his advisors to find him a ​‘one-handed’ economist.

In the UK in 2022, one-handed economists are widely available… for a price, of course.

Every year around half a million planning applications are submitted in England alone. Projects large and small go in front of officers and committees of local government and are assessed on their merits with a view to protecting the public interest. The largest and most controversial of the schemes asking for development permission commonly find themselves among the 18,000-odd applications which go to appeal each year. In theory outcomes are determined objectively according to evidence, plans, laws, and policy. The reality, of course, is very different.

In some cases the rules are clear and decisions straightforward. In others, there is room to manoeuvre. Often, consultants are employed by scheme proponents ostensibly to conduct ​‘independent’ assessments, but in practice they are there to make the case for a development. Economic benefits are presented, usually the creation of jobs, and these are cited as reason to accept any harm done by the proposed scheme, such as to the environment. But a vacuum in formal assessment standards and guidance exists – especially when it comes to economics – and this can have serious negative impacts on communities in the UK.

The planning system leaves significant flexibility for consultants to interpret an ​‘economic impact assessment’ as they see fit. Consultants can pick and choose which impacts (positive or negative) to quantify, which to mention in passing, and which not to mention at all. The geographical boundary for the assessment is flexible, allowing consultants to draw a line that’s preferential to their client, and the baseline against which the impacts of the proposed scheme are measured can be tweaked to suit the case for the scheme.

At NEF we have documented many of these flaws when it comes to the assessment of the climate impacts of airport expansion applications, but through my recent involvement in the planning case for the expansion of Luton airport I met another painful example. In Luton, the airport put forward a witness – a ​‘senior director’ from a major UK consulting firm – to present their economic assessment. I acted as a witness for the community group which is opposing the airport’s expansion.

During cross-examination, the barrister representing the community living around the airport asked, ​“Do you identify a single negative impact of the proposal in your assessment?”

The Airport’s economics witness responded, ​“No.”

The idea that there are no negative economic consequences from expanding an airport is, obviously, nonsense. During cross-examination, the airport’s economics witness was challenged by the local community’s barrister on three counts. First, failing to analyse the economic cost of additional greenhouse gas emissions, which must be captured from the atmosphere using expensive unproven emissions removal technologies. Second, ignoring the impact of additional noise and air pollution on the costs experienced by businesses and the NHS. And third, erasing losses to the domestic tourism sector and the high street as consumers choose to fly abroad instead.

“The idea that there are no negative economic consequences from expanding an airport is, obviously, nonsense.”

The standard of analysis put forward by economic consultancies in support of planning applications is all too often second-rate. In many cases, councillors, council officers and planning inspectors are capable of identifying issues with economic assessments and demanding better. But seeing through the flashy presentation, confident delivery, and knowledge of ​‘the game’ held by many private sector consultants isn’t always easy.

Local authority officers, working in environments where resources and capacity are stripped to the bare bones, are often tasked with scrutinising applications on subjects well outside their specialist area. Resource permitting, the local authority can contract outside support, but neither the authority, nor their consultants are immune to the same biases and issues with appraisal standards that influence private sector promoters.

Too often, true scrutiny is only provided by the local community. Activists are sharp and can often spot the flaws in the assessments, but challenging power takes a vast amount of time, effort, and money. In many cases local communities simply don’t have the resources.

In all, the planning system represents a very leaky ship. Luton itself is a case in point. Back in 2012 the airport had a previous application to expand approved. That application gave as a ​‘central’ estimate a forecast that employment at the airport would increase by 5,100 jobs upon reaching a capacity of 18 million passengers per year. The true figure, when that capacity was reached, was 2,650 jobs, or half the amount promised.

Research suggests failures like this are widespread. A recent paper by Flyvbjerg and Bester of the University of Oxford shows, from a dataset of 2,062 projects, that assessments consistently overstate benefits and underestimate costs. With such failings propagating interventions like airport expansion, which cause exceptional damage to our global climate, we urgently need change. Removing ​‘one-handed’ economics from public decision making won’t be straightforward, but the suggestions by Flyvbjerg and Bester that economic forecasters should subject to independent audits, and should have some liability for their forecasts proving wildly inaccurate seem like a good start.

Image: iStock/​NeonJellyFish