Last week, Transport for London commissioner Andy Byford released a 115-page TfL Financial Stability plan. It shows that what was once seen by some as a strength of the TfL model – its high dependency on fare revenues – has proven to be a fundamental weakness, an Achilles’ heel exposed by Covid-19.
Years of government policy under successive administrations to force the costs of the railway onto passengers appears to have backfired. Gone are the days when ministers could boast that Londoners (and middle-class commuters more generally) make a “fair” contribution to the costs of the system. A farebox-led approach did provide TfL with a degree of financial autonomy – money raised independently of government is much harder for it to get its hands on – at least in the short term. It is an example of fiscal devolution in its purest sense.
But fast forward to 2021 and Covid-19, coupled to long-term changes in ridership patterns supercharged by the pandemic, has precipitated a perfect financial storm. Demand for travel into Central London, which accounts for the lion’s share of TfL traffic and revenue, has collapsed.
Post-recovery, it is predicted that five (often four) day pre-pandemic commuting will fall to maybe three days a week. Furthermore, existing trends for eating in more and going out less that have been hugely exacerbated by Covid will knock revenues for the foreseeable future. Then there are the international tourist and business travel markets that have been wiped out and may take years to recover.
TfL’s plan, like a new report by Arup for business group London First, signals there is a push to secure alternatives to the farebox approach. Some of these are not new. Ever since the first days of the Tube and the private rail networks, attempts have been made to include land value gain as part of rail funding models. But as far back as 1854, MPs have fretted over the extent to which railways should be allowed to buy up land (using compulsory purchase powers) to capitalise on values that jump with the arrival of new stations.
Both documents also zero in on London vehicle excise duty (VED) – the tax paid on car ownership. This is estimated to generate around £500 million per annum. At present, central government takes all of that. And under a quirk – some might say a deliberate one – of the funding model for Highways England, the Department for Transport’s major road operator, virtually none of its income is spent in the capital. That is because Highway England’s empire only touches Greater London’s boundary where bits of the national motorway network terminate.
Byford suggests that if VED was channelled into TfL’s coffers, the authority could cover its day-to-day operating and financing costs on an ongoing basis. Fans of fiscal devolution will support this idea. Treasury officials, who will have to find a way to fill the hole, probably won’t.
As an alternative to localising VED, TfL suggests a new charge on motorists entering the London area. To raise £500 million a year, a Boundary Charge of £3.50 a day on most vehicles plus a £2 surcharge for ULEZ non-compliance (an environmental tax) would be needed. Londoners would be exempt, with the new imposts falling Manhattan-style on London’s “bridge and tunnel” equivalents – the Home Counties.
Not surprisingly, the idea has been met with howls of protest in some quarters. Paul Scully, the minister for London, branded the idea a “land border” that would lead to “check-point Chigwell”. But the reality is that to keep the system up and running and avoid long term decline, someone will need to pick up the tab.
The TfL proposal to tax non-Londoners might be seen by some as posturing to encourage the government to go for the VED option. It nonetheless highlights a serious structural issue around the extent to which non-Londoners benefit from London’s economy and infrastructure provision, but do not pay (much) for it.
Crossrail is a good example of this. All development levies for the scheme have been raised in the Greater London Authority area, yet miles of the new services lie outside of the M25 and its benefits will accrue there too.
If the government is serious about carbon reduction, sustainability and charting a path for London’s post-Covid, post-Brexit success, it would do well to give both reports a careful read. As New York is perilously close to showing again, allowing decline and decay in a great city’s transport network can prove to be very expensive in both economic and social terms.
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