An airport, regulation, stagnation and ill feeling

Written 30 May 2022

The Plymouth Herald reports today that the future of Plymouth Airport is once again “under discussion”. This is a long running saga down in these parts and is a subject I have some familiarity with having worked for Sutton Harbour Group (SHG, the current airport owner) between 2013 and 2018. I’m not interested in the question of whether or not the site has a viable future as an airport, but as an interesting illustration of all the things that are wrong with the way we approach infrastructure, housing and (my main interest) taxation in this country.

In brief, and from memory, a potted history of the site is as follows. It operated as an airport for a number of years under the ownership of British Airways (through Brymon) and was bought by SHG in 2000. The site consists of approximately 11 acres of freehold land with the remainder under a lease that has 111 years to run. It’s located in the North of Plymouth and surrounded by industrial, educational, medical properties as well as housing. Under SHG’s ownership the airport never really thrived. Brymon withdrew a couple of years after the sale with BA retaining the slots at Gatwick (I believe they undertook to continue services for two years after the sale). Having failed to really attract much interest from other airlines, SHG set up its own airline (Air SouthWest) in 2003 and this lost a great deal of money and was sold at a loss. The airport was finally closed in 2011 and all in all its foray into Plymouth Airport was a commercial disaster for SHG leaving it highly indebted. My twopenneth is that British Airways saw SHG coming and couldn’t believe their luck, SHG didn’t know what it was doing and doubled down with Air SouthWest. The City Council has lost less money but has never really got to grips with the issue either.

The history of the airport, the behaviour of SHG and the Council (which owns the lease) are all highly contentious within Plymouth and arouse strong emotions. The current status of the site, decided through the Plymouth Plan, is that it is safeguarded for future aviation use until 2024. SHG wishes to develop it for housing and other uses but there are campaigns to reopen it as an airport (though finding somebody who will put their money where their mouth is has yet to happen).

Plymouth City Council is a key stakeholder, many people in the city think it is important for Plymouth to have an airport but there is also a need for housing and decent jobs. I think there are genuine questions over the viability of the site as an airport, but technology moves fast too and I’m not primarily concerned with the rights and wrongs of how to use the site. The airport site is currently rated for aviation use at a value of £1. It is carried in the books of Plymouth City Airport Ltd (SHG’s subsidiary) at just south of £13million, but the audit report makes it clear that this does not reflect any impairment that may be required in the event of an unfavourable planning decision.

I tried to keep it brief but it’s easier said than done. Anyway, enough background, nothing more about aviation, what does this unhappy tale show us? Well, my eye is drawn to a couple of things:

The first is Planning: if there’s one thing Plymouth (and the airport in particular) is not short of it’s planning reviews, inquiries, reports and inspections. If local taxpayers had received the benefit of all the time and money that has been expended by SHG, the City Council as well as various other central governmental offices and agencies they would be rich indeed. The only people who have benefited from this over the last decade or more are the countless planning specialists, acoustic consultants, lawyers and bureaucrats for whom the process has been a cash cow. And yet we aren’t any further to achieving a resolution on the site. No business is employing people there, no one is living there and no flights are leaving from there. The easiest decision for those in a position to make things happen has always been to postpone making one. SHG has continued as a zombie company just able to service interest to its banker but hampered from investing in its other assets

The second is Taxation. SHG wants to develop the site and has come up with various schemes to do so. I was there when the so-called “Plym Vale” scheme was being worked up, I’d guess that’s been superseded or at least heavily modified under new ownership. With the grant of planning permission, the value of the site would increase substantially and SHG would be set to make many, many millions of pounds. This is a clear illustration of how planning use affects the value of land, and SHG would aim to make a return of many times its expenditure to date (see above). Through a catastrophic investment in an airport and then an airline, SHG is looking to make its investment whole through a return on changing land use (many people in Plymouth believe this was always its plan). Profits would be taxed as trading income at the corporation tax rate at the time of selling the land to developers, housebuilders, investors or whatever.

The issues of Planning and Taxation are linked, not just in the obvious sense above which is really a fairly standard property development play, but also I think because opposition to development of the site as housing is rooted in part at least I think in the fact that the gain to SHG seems unjust. It’s fashionable at the moment to bemoan the influence of the dreaded NIMBYs and their responsibility for the fact we can’t build houses. I have a lot of sympathy with this view: I want to see many more houses being built, we need them, and a country where large and increasing numbers of young people have no realistic access to property ownership is a country that is in very bad shape.

But might a key contributor to NIMBYism be the fact that the gains being made from irrevocably altering the environment in which people live accrue to an absent landowner? Might this make people angry and obstructive? Might we get better decision making if the gains from development were more evenly spread about? To return to Plymouth Airport, why should the uplift in land value from aviation use (rateable value £1) to tens of millions of pounds accrue to someone who bought the land cheaply and has employed lawyers? Local politicians can and do play to these feelings, they know how to read a room. Now the objection to SHG in Plymouth is not couched in exactly those terms, but it’s under the surface. Most of the gain in any change of use is unearned but depends on a politicians signature and accrues just to the current landowner. I know there are s106 and CIL rules which attempt to capture some uplift, but these are gamed and highly bureaucratic. Developers are better incentivised than local bureaucrats to maximise their return and to put it bluntly they are much better at negotiation than local council employees.

I haven’t mentioned land value tax (LVT, which I support) but we do need to start doing these things better and LVT will in my view play a part. But our malaise isn’t merely a product of tax regulations, it’s that so much advance is bogged down in the sort of thing I’ve outlined above. But the economics of land ownership works against progress. Politicians are not incentivised to make decisions, landowners have very low holding costs and can realise disproportionate gain. If we want to progress as a country we’ve really got to start addressing these root causes, one of which is the failure of the taxation system to incentivise parties to proceed.

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