The push for joined-up government apparently has not reached the Civil Aviation Authority. The new pricing regime for users of Heathrow and Gatwick had airlines frothing yesterday of course, but the Bank of England cannot have been too chuffed either. Heathrow has been given the green light to increase the prices it charges airlines by 80 per cent over five years. These kinds of officially sanctioned inflation-busting price increases are precisely the sort of precedent that sparks other price and wage rises.

The pleading of Heathrow, or indeed of energy suppliers, or rail operators, or bakers, bankers and candlestick-makers, that theirs is a special case may be perfectly valid, but makes no difference to the effect on consumer and boardroom psychology; the growing impression is prices of all kinds are shooting up.

Companies with enough market power will be doing all they can to pass on the pain in the form of higher selling prices. Employees with sufficient negotiating clout will be pushing for higher wages. The inflation virus is well out of the lab and risks creating an epidemic. The impending slowdown should put downward pressure on these impulses. But - short of some financial catastrophe (which does not seem so implausible in these jittery times) - expectations that the Bank will be able to cut interest rates repeatedly in such an environment are starting to look overcooked.

Airlines and BAA were moaning about the new pricing regime yesterday but the airlines' fury looks the more genuine. Any normal business would give its eye teeth to be able to lift prices by these amounts, certain that customers have no choice but to cough up. BAA and Ferrovial, its Spanish owner, were doing their best to look hard done by yesterday, if nothing else to spare the CAA's blushes, but they must surely be thrilled. Ferrovial shares soared.

The CAA is emphatic that the change of heart was only because of additional capital spending and security obligations imposed on BAA and absolutely nothing to do with the souring conditions in the credit market, which are pushing up the cost of servicing its borrowings. British Airways disagrees, arguing that the CAA is bailing Ferrovial out. Conveniently, just after the credit crunch hit, BAA was allowed to assume a higher number for its cost of capital - a key input in CAA decision-making.

The new tariff for BAA's customers is dramatically higher. Heathrow alone will immediately be able to charge airlines an extra £180 million this year and an extra £500 million a year in five years. That is roughly £10 on each fare out of that airport if the cost is passed on to passengers.

Add the contribution from Gatwick and, within five years, the additional fees generated by the new tariff structure would be almost enough to pay the entire interest bill on BAA's £10 billion debt pile. That gives a flavour of quite how generous to BAA the CAA has been.

Of course, BAA's customers should share in the heavy cost of the capital spending plans at Heathrow and Gatwick. But it would be deeply unsatisfactory if airlines and their passengers were having to pay the price for the excessive leverage voluntarily taken on two years ago by Ferrovial.

The airlines are not just innocent victims in all this. They benefit as well as suffer from Heathrow's stranglehold on London's air passengers. Rights to take-off slots at the airport are valuable. Some airlines are seen as valuable portfolios of slots, with tiresome loss-making aircraft on the side.

The case for a break-up of BAA, enabling Gatwick and Stansted to compete against Heathrow, is as compelling as ever.

patrick.hosking@thetimes.co.uk

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