Domestic connectivity has been falling for years, mainly due to improvements in mainland rail and airlines desire to move slots to more proffitable destinations. Despite T5 opening, LHR today serves less destinations than before, and the rail improvements are due to continue long into the future.
You are mixing up point to point domestic travel with international connectivity over a hub. ABZ/GLA/EDI/NCL/MAN/BHD and now LBA play an important part in plugging those regions into the world over LHR. This is a major part of BA's business model and feed to maintain viability of some long haul. It would be foolish to have them arrive in tents and be bussed given the current huge unpopularity of the current T5/T3 slog at a fraction of the distance. Be realistic.
Just to clarify, what airlines and what "small planes" are you removing from lounge access and existing terminals? It's not as easy in the practice as the suggesting.