UK's Reeves puts new Heathrow runway at heart of growth push

By Andrew MacAskill

EYNSHAM, England (Reuters) - British finance minister Rachel Reeves gave the government's backing to a long-delayed new runway at London's Heathrow Airport on Wednesday as the centrepiece of her plan to speed up the country's sluggish economy.

Reeves, under pressure to address concerns about growth after a bond market selloff this month, also listed plans for new wind farms and reservoirs and a "growth corridor" between the university cities of Oxford and Cambridge.

Announcing support for a third runway at Heathrow, Europe's busiest airport, Reeves said past delays had cast doubt among investors over the seriousness of successive governments to do what is needed to open new export markets.

"We cannot duck the decision any longer," Reeves said in a speech at a medical equipment plant operated by Siemens Healthineers near Oxford.

She denied the increase in flights would undermine Britain's net zero commitments but campaigners and London Mayor Sadiq Khan - a senior figure in the governing Labour Party - said they opposed the move on climate concerns.

Reeves is seeking to address fears that Britain's economy is growing too slowly to reduce its public debt burden quickly. But many of the projects on her list will take years to complete while the tax increases she announced for businesses in October swiftly hit corporate hiring and confidence.

Farmers in tractors gathered outside the Siemens plant where she spoke to protest her move to end an inheritance tax exemption for farming families.

Reeves said the government would clear the way for 16 gigawatts of offshore wind power generation and announced investments by a state fund of 65 million pounds ($80.7 million) in an electric vehicle-charging network and 28 million pounds in a mining operation in southwest England.

She said Britain would seek to build up its post-Brexit trade ties with the European Union and its U.S. relationship under President Donald Trump, while the business minister would visit India soon to restart talks on a trade deal.

Reeves and Prime Minister Keir Starmer promised voters before last July's election they would turn Britain into the fastest-growing Group of Seven (G7) economy. But since then it has lost momentum, with many employers blaming Reeves' tax hike.

This month's surge in global government borrowing costs - which hit the UK particularly hard - only increased the pressure on Reeves to get the economy moving again.

OVERCOMING LOW GROWTH

Reeves said in Wednesday's speech that home-building and new transport links between Oxford and Cambridge would help to create "Europe's Silicon Valley". She also highlighted 8 billion pounds ($9.95 billion) of investment over five years by water companies, including the building of nine reservoirs.

"Low growth is not our destiny. But growth will not come without a fight," she said.

Starmer and Reeves have previously said they will not allow opponents of infrastructure and big construction projects to use planning rules to block development, and they are in the process of streamlining the system.

Heathrow Chief Executive Thomas Woldbye told Reuters a third runway could be operational by 2035. "There is a mood in government to show economic growth. We are now an essential part of that plan," Woldbye said

Greenpeace UK’s policy director Doug Parr said the government should do more on renewable power and innovation in green steel, electric vehicles and batteries "instead of picking up any old polluting project from the discard pile".

The Bank of England has forecast that Britain's economy did not grow at all in the second half of 2024. The bank said in November it expected growth of 1.5% in 2025, largely due to higher government spending.

Morgan Stanley, Goldman Sachs and J.P. Morgan have more recently forecast growth of under 1% this year, although the International Monetary Fund has said Britain will outpace its even more sluggish European peers.

Gilles Moec, chief economist with AXA, Europe's second-biggest fund manager, said Britain and other governments were seeking solutions that avoided significant increases in public spending.

"If you can't put the money into these big funded programmes, it is not going to look spectacular... and then it may not trigger the confidence boost that you want," he added.

($1 = 0.8039 pounds)

(Additional reporting by the UK bureau and Marc Jones in London; Writing by William Schomberg; Editing by Gareth Jones and Toby Chopra)