Alexander Jan: The government’s attitude to funding TfL is a recipe for long-term decline

Alexander Jan: The government’s attitude to funding TfL is a recipe for long-term decline

Here we go. They are at it again. For the third time in just over a year (absurdly, the fifth time if you throw in the cliff-hanger extensions) the government has agreed to get its cheque book out to “save” Transport for London’s finances. The latest agreement, which lasts all of six months, provides TfL with support along the lines of the October 2020 settlement but with sharper teeth.

In return for around £1 billion of cash funding to (only partially) offset lost farebox revenues due to Covid, “the Combine” – as it is affectionately known among transport aficionadoswill need to endure financial pain as well as jump through a number of hoops, with which Number 10 appears preoccupied.

In financial terms, the agreement brings Covid-related government support for TfL to some £4.9 billion, which sounds like (and is) a big number. It also recognises that more support may well be needed until at least 2023. But in comparative terms, the deal is by no means generous. It will probably end up representing somewhere between 60 per cent and 70 per cent of the Covid-related revenue loss that TfL has suffered. As ratings agency Moody’s has pointed out, that is far less generous than the support made available for other world cities’ transport authorities. 

Ironically, TfL’s comparatively high dependence on the farebox – something encouraged by ministers for decades – has now made it vulnerable to central government control. National rail franchise operators – soon to be turned into TfL-style concessionaires under government reforms – have received nearly £7.4 billion of Covid support, but evidently without any London-style austerity conditions being attached.

Accompanying the latest “agreement” is a series of other conditions. These include exploring the case for the introduction of so-called “driverless trains” – a cost and technical minefield and something Boris Johnson somehow didn’t find the time or money to do in his eight years as Mayor. There is also a requirement to set up a housing delivery company – in itself no bad thing – but with what seems like the rather limited ambition to deliver housing in “a high demand area…” (note the use of the singular).

TfL must also undertake work to assess future passenger demand levels and how these might be affected by the pandemic. The government’s angle is that they don’t want TfL to commit to future expansion of the city’s transport network without knowing demand exists. This is sensible, yet no such philosophy appears to be applied to HS2. There is also a commitment to reviewing the sustainability of TfL’s final salary pension scheme, now an endangered species (and one of the better ones out there). 

For sure, the latest settlement will allow TfL to continue to keep running services and safeguard its day-to-day renewal programme. But TfL commissioner Andy Byford said in a press release: “We need to find a further £900 million of savings or new income this year compared to our approved budget and on top of the £730 million of savings already assumed in our business plan.” 

Even for the most nimble of enterprises, that would be a tall order. For TfL, with an ocean-going sized capital programme and a substantial fixed cost base (although by no means the highest among its peers), delivering on these sorts of numbers inevitably puts long-term investment in the system and its expansion at risk.

TfL’s predecessors suffered with decades of stop-go funding. This was followed by the trauma of the failed London Underground public-private-partnership (another Whitehall inspiration). Since then – with government support – TfL has been pretty successful at sustaining its investment and expansion. The risk now is that this all starts to unwind, leading to long-term decline as happened in the past to New York. Once that happens, it is very hard to get the system back on its feet or to meet rising demand.

On the income side of the equation, having ruled out extra borrowing capacity, the government wants to see TfL generate an additional £500 million to £1 billion on an annual basis by 2023, and within the ambit of the Mayor’s and TfL’s existing powers. In theory, there are a number of options here, but they appear fraught.

Firstly, the Mayor could further increase his supplement on Council Tax bills, but these are de facto capped by the government at two per cent for non-social care costs. There could be a further increase in the existing – and officially temporary – Congestion Charge, though at £15 a day, with long hours and weekend operation, this is already one of the most expensive in the world. A further hike would either raise very little extra money or could even lead to a reduction in revenue. It would also risk deterring yet more people from visiting Central London at times of day when there isn’t much traffic about. 

Another idea the Mayor floated was for a Greater London Boundary Charge, which would mean non-Londoners paying £3.50 each time they entered the GLA area (or £5.50 for the most polluting vehicles). But in a somewhat grumpy letter to the Mayor accompanying the TfL deal, Shapps rules this out. He says non-Londoners shouldn’t have to pay for services mainly enjoyed by Londoners and that “people living outside London should not be made to pay for the pursuit of policy choices over which they have no say.” With a substantial tax surplus paid from London to the rest of the country, it seems the opposite is entirely acceptable to the secretary of state. 

Shapps also ruled out the devolution of £500 million a year of Vehicle Excise Duty paid by Londoners because it would become a “permanent government grant”. Yet this money is allocated by central government to pay for Highways England, which has virtually no road capacity within the GLA boundary. Londoners must use the national network far less than, say, their Home Counties cousins.

All this leaves two other options. The first would be further significant fare increases, but it is hard to see how a hike would help rebuild demand from passengers only just recovering from the trauma of Covid and a forceful government campaign telling them not to travel. The second would be more road pricing. That is not a bad idea in principle, but there are already plans underway for an extension of the ULEZ later this year (a big change). And the practical hurdles to introducing a wider scheme on a well thought out basis by 2023 are not insignificant.

Until the political landscape changes, London’s transport investment programme is likely to end up taking a hit along with fare payers. That risks inducing a period of decline. With Crossrail and the Northern line extension due to open soon, this can be mitigated for now, but then the cupboard will be pretty much bare.

As Number 10 continues to play to a levelling down agenda, across the Channel, Paris forges ahead with an enormous investment programme. Les Parisiens could perhaps be forgiven for celebrating just a little, as we hand them a further opportunity to become Europe’s leading city, this time for its transport system.

Alexander Jan is chair of the Midtown business improvement district and former chief economist at Arup. Follow Alex on Twitter.

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Categories: Comment

1 Comment

  1. Steve J says:

    No easy options. Fares will go up but to an extent this is reversing the fare freeze of the last few years. We will be paying Boris-level fares but potentially more in the long run. But the ‘Red Wall’ thinks we pay peanuts in comparison to fare-payers up there, so the government won’t be bothered.
    Getting income in must involve any sort of ‘road pricing’ that can be delivered relatively cheaply (ie quick payback) and by end 2023. Can the CC Western Extension be re-introduced? Maybe the infrastructure is no longer there or Boris might block it, but worth consideration.
    Ulez expansion to the London boundary by early 2024 could be done if it was accepted that camera coverage would initially be sub-optimal. This would have to be announced pretty much straight away. Ironically, drivers just outside London may be the most affected so Shapps might not be happy.
    The roads programme will have to be scaled back, particularly nice-to-have schemes like gyratory removals. Expensive with limited returns. With £100m already pre-allocated by Shapps there won’t be much available for anything else anyway.

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