UK: The government and Transport for London have reached agreement on a funding settlement running until March 31 2024. This includes just under £1·2bn of base funding and a revenue support mechanism, although there is still a funding gap and TfL is required to consider pension reform, cost savings and driverless trains.
Before the pandemic, TfL was more dependent on fare revenue than comparable operators internationally which receive central government support. When ridership collapsed, it needed additional funding which has been provided by the government through a series of short-term agreements.
Transport for London Commissioner Andy Byford said the latest agreement reached on August 30 was ‘hard won’ and ‘means that we can now get on with the job of supporting London’s recovery from the pandemic — to the benefit of the whole country’.
He said the deal ’helps us avoid large-scale cuts to services, and means that we will commit £3·6bn to capital investment over the period, with around £200m of new capital funding from government beyond previously budgeted sources like business rates, which were devolved to the Mayor of London in 2017. The agreement also allows us to increase our asset renewal programme to help ensure our network remains reliable.’
Funding details
Under the agreement, TfL expects to receive further base funding of around £1·2bn from the government until March 2024, and there is provision for ongoing revenue support to the same date should passenger numbers not recover at the rate assumed. This gives TfL more clarity about the resources it will have available despite the ongoing uncertainty around passenger behaviour following the pandemic.
TfL’s ability to deliver already committed investments is confirmed, including new trains for London Underground’s Piccadilly Line and for the Docklands Light Railway, the Four Lines Modernisation of the District, Metropolitan, Hammersmith & City and Circle lines, the Bank station upgrade and finalising investment in the Elizabeth Line.
There is also an increase in infrastructure renewals above the level TfL had budgeted.
The deal dedicates £80m/year for active travel schemes, and includes the establishment of an independent property company that will start to develop 20 000 homes on TfL land within 10 years.
Driverless trains
The introduction of driverless trains on the London Underground is often suggested by politicians, but would pose major technical and operational challenges on some of the oldest metro lines in the world.
The Department for Transport said ’as part of the agreement, the government ensured the mayor agreed to continue work on the introduction of driverless trains on London Underground, something the Transport Secretary believes is key in London maintaining its position as Europe’s greatest transport network’.
Mind the budget gap
TfL said the agreement leaves a gap in its budget of around £740m across 2022-23 and 2023-24.
In order to accept the agreement, it had to identify measures to balance the budget. These include holding its cash balance at £1·2bn, assuming benefit from the inflation mechanism built into the agreement, and the release of contingency from the budget.
This leaves a target for further savings of around £90m in 2022-23 and £140m in 2023-24 beyond the £730m per annum recurring savings programme already committed to.
DfT said the mayor has committed to submitting proposals to reform pensions by the end of September; continuing to progress ongoing initiatives to become more efficient; and to progress proposals to generate more revenue.
The mayor and TfL will be responsible for setting out and implementing areas where these changes can be made, as well as for accelerating reforms to ensure TfL becomes financially sustainable by 2023.
TfL said it is ’now working through what combination of levers enable us to deliver this, including additional potential sources of funding if the savings cannot be met’.
Responses
Secretary of State for Transport Grant Shapps said ’this deal more than delivers for Londoners and even matches the mayor’s own pre-pandemic spending plans. But for this to work, the mayor must follow through on his promises to get TfL back on a steady financial footing.’
Mayor of London Sadiq Khan responded by saying that ’we have managed to win a number of key concessions from the government, which mean we will be able to avoid TfL having to make the devastating cuts to vital transport services previously proposed — moving us away from the managed decline of London’s transport network.
’However, I want to be frank with Londoners — this deal is far from ideal. The government is still leaving TfL with a significant funding gap, meaning we will likely have to increase fares in the future and still proceed with some cuts to bus services.
‘There are also onerous strings attached, such as the government’s condition requiring TfL to come up with options for reform of TfL’s pension scheme at pace, which could well lead to more industrial action and more disruption for commuters.
’These are things we have had no choice but to accept in order to get the deal over the line.’
Khan added that ‘the sole cause of TfL’s financial crisis was the impact of the pandemic, so it’s simply wrong to punish Londoners and transport workers in this way. Levelling up the country should not be about levelling down London.’
Darren Caplan, Chief Executive of the Railway Industry Association, said the funding certainty would enable suppliers to ‘plan ahead and deliver better value for money’.
He said suppliers ‘continue to urge both government and TfL to agree multi-annual deals that last beyond 20 months, more like the five-year Control Periods on the national rail network. This is the only way to get the best possible value, to the benefit of both fare and tax payers, and to ensure the potential of one of the cleanest forms of public transport really is fully realised in the months and years ahead.’
Nick Bowes, Chief Executive at the Centre for London think tank, said there would be ‘a huge sigh of relief from Londoners and London’s businesses’ following the agreement. ’For two years, this crisis has rumbled on, causing untold damage to TfL, eroding confidence in the city and leaving Londoners worried that the buses and Tubes could stop running at any moment.
‘While we await full details of the deal and conditions that come with the funding, TfL can now get on with its job of running the city’s transport system and planning for the future without having to worry day to day over its very survival.’
General Secretary of the TSSA union Manuel Cortes said members at TfL are ‘concerned and angry’ at the funding settlement. He said ‘London and Londoners are being punished for voting Labour and it will be they who pay the price, with cuts to services and investment, and higher fares. Already they have been warned of “unprecedented” increases next year, which will impact most upon the poorest in the capital.’
| Transport for London government support agreements resulting from the coronavirus pandemic | ||
|---|---|---|
| Start | End | Support |
| May 15 2020 | October 17 2020 | UK government agrees the first funding package, an extraordinary support grant of £1·095bn and a loan of £505m to support continuity of operations at TfL |
| October 18 2020 | October 31 2020 | Higher than anticipated ridership means the existing package is sufficient for a two-week extension, agreed on October 16 2020 |
| October 18 2020 | March 31 2021 | H2 package agreed and backdated: government approves an extraordinary support grant of £905m, and incremental borrowing by TfL of £95m |
| April 1 2021 | May 18 2021 | H2 package extended to cover the period of the elections for the Mayor of London |
| May 18 2021 | May 28 2021 | H2 package extended by a further 10 days, with a payment of £65m and a top-up grant available based on actual passenger revenues |
| May 29 2021 | December 11 2021 | Third funding package; the six-month H3 deal reached on June 1 provides an extraordinary support grant of £1·08bn, with top-up grants if revenues are lower than forecast and TfL repaying any excess; this provides TfL with certainty that it will receive revenues of £1·78bn on top of the £1·08bn grant |
| December 11 2021 | December 17 2021 | Funding Package is extended; terms amended to define the funding period as May 29 2021 to December 17 2021. |
| December 18 2021 | February 4 2022 | Further extension announced on December 17 2021. |
| February 4 2022 | February 18 2022 | Further two-week extension agreed on February 4. Provisions remain materially the same, including the top-up grant mechanism. |
| February 18 2022 | February 25 2022 | One week extension announced on February 21 after Transport for London asked for time to consider a funding deal proposed by the government. |
| February 26 2022 | June 24 2022 | Fourth funding package. |
| June 25 2022 | July 23 2022 | H4 package extension announced on June 24. |
| July 23 2022 | July 28 2022 | Further extension announced on July 13. |
| July 28 2022 | August 3 2022 | Further extension announced on July 28, to give TfL time to discuss the government’s draft proposal for a long-term funding settlement. |
| 12.00 August 3 2022 | Funding agreement allowed to expire. | |
| August 30 2022 | March 31 2024 | New agreement announced on August 30 |
