Charles Wright: What will the government do to Transport for London next?

With just 18 days until the latest Transport for London bailout deal expires the pressure and the rhetoric are mounting on all sides. 

TfL is big business: carrying four million or more passengers a day on the Underground in normal times, keeping the city moving and supporting jobs across the country. It was making progress towards self-sufficiency too, until Covid revealed the weakness of a system relying on fares for 72 per cent of its income and left the network dependent on Whitehall funding.

So what’s going on between TfL, the government and City Hall?

WHAT IS THE GOVERNMENT SAYING?

Whitehall has propped up TfL with more than £4 billion funding to date, but through short-term “strings attached” deals. They say there will no more bailouts after April next year.

It’s that deadline, reluctantly accepted by Sadiq Khan, which poses the major challenge for TfL – making up that loss in revenue and balancing its books in 2023/24.

For the coming financial year, 2022/23, TfL estimates that it needs some £1.1 billion of extra help, not least to enable it to comply with its legal obligation to balance its books, which the government has recognised.

So the current impasse is not so much about whether TfL  avoids collapse in April as what price the government will make the beleaguered network pay for the next bailout.

For the government, the key key requirement is that TfL identifies between £500,000 and £1 billion a year from April 2023 to plug the budget gap, using “existing” mayoral and TfL powers only.

That means Khan’s suggestion of a new tax on home deliveries is ruled out along with his bid for the £500 million a year vehicle excise duty Londoners pay to the exchequer, only a small proportion of which is spent on London’s roads. The much-discussed “boundary charge” on non-Londoners driving into the capital has also been vetoed, as TfL confirmed to the London Assembly last week.

TfL’s POSITION

There’s more than a little frustration at TfL HQ that negotiations haven’t progressed beyond demanding a bigger contribution from the Mayor towards balancing the books while ruling out most of the suggestions coming forward. 

“The main sticking point is the government’s insistence that City Hall should make a larger contribution,” TfL’s outgoing finance chief Simon Kilonback told the London Assembly last week. “But we haven’t been told what the government will rule in,” he added, perhaps offering a clue about the reasons behind his recently-announced departure for the private sector.

The government has also refused TfL any extra capital funding over the next three years, a move which network chiefs say hampers forward planning, undermines progress towards the goal of achieving “net zero” by 2030 and increases ongoing maintenance and renewal costs, making a “managed decline” scenario even more likely.

Small-scale service cuts are already underway, and the government’s stance has forced Khan to come forward with fares increases, changes to ticketing arrangements, cutting back on travel concessions for over-60s and hiking the City Hall council tax precept by some £20 a year from Band D properties over the next three years.

With those measures generating only enough cash to bridge around half the £500 million a year funding gap, the government so far is not blinking. 

WHAT NOW?

Government, City Hall and TfL are still a long way apart, and the ball is currently in Khan’s court, with a Wednesday deadline for him to bring more ideas to the table.

Options are limited, according to Kilonback, with Khan looking at extending the ultra-low emission and congestion charge zones, and/or shifting towards a more sophisticated road-user charging system.

“Dynamic” Tube fares – varying prices to match demand – could also be considered and the government will continue to press for progress on so-called driverless trains and changes to TfL’s pension fund to reduce costs, although these are longer-term measures.

There may be hard bargaining too about fare levels and income too, with the opening of the Elizabeth Line this year forecast to bring in £1.3 billion in fares over the coming three years – though the figure is much lower than pre-Covid estimates – and the ending of “work from home” guidance possibly bringing a further boost.

The process is a stark illustration of the extent to which London’s public transport system is now being “micromanaged” by Whitehall according to Nick Bowes from the Centre for London. “Legislation is clear that TfL is devolved, but the GLA Act is being circumvented and control exerted through conditions attached to funding instead,” he commented.

And if City Hall’s plans do not meet with government approval, the final option is “pretty simple”, as TfL chief Andy Byford told London Assembly members. “If you haven’t got the income but you still have the costs the only option is cuts. You can’t solve the problem by belt-tightening.”

LOOKING AHEAD

TfL will get through the next financial year, although a six-month deal from government would allow Whitehall to keep the pressure on in the autumn. 

But questions remain about the unsustainability of TfL’s pre-Covid funding model, who should pay the subsidy the system will inevitably need and what the balance should be between fares and other revenue sources as well as the wider implications for London and the country if the network is allowed to decline.

How to address the significant costs of decarbonising the network, if that is to happen by the target date of 2030, is another critical question.

As Kilonback told Assembly members: “We haven’t really got into discussing shared priorities for the transport system in London, what outcomes do we want to achieve and how should they be funded.” To date, political considerations have been to the fore in discussing TfL’s future. With the next mayoral election only just over two years away, that may remain the case.

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