Skirmishes are to resume in the battle between Whitehall and City Hall over the future of Transport for London – and there’s a lot at stake. Today is the deadline for the beleaguered transit agency to deliver its plan to achieve “financial sustainability” by 2023, a key condition of October’s £1.7 billion government bailout which is keeping TfL above water until April.
A further substantial government bailout for 2021/22 looks like the inevitable outcome of the forthcoming negotiations, if the capital’s public transport network, reliant on fares for almost three-quarters of its revenue, is to avoid collapse. The latest lockdown is already seeing London Underground ridership down to 18% of pre-Covid levels.
Interest has focused on immediate funding issues, with Sadiq Khan already forced to increase bus and Tube fares by an inflation-busting 2.6% from March and hike his Council Tax precept by 9.5% for 2021/22, partly to contribute to the estimated £125 million annual cost of free travel for under-18s and 60-65 year-olds, which the government is refusing to fund.
But the government’s demand for financial stability goes well beyond the network’s present predicament, with more than a whiff of continuing and increasing central control of the devolved transport body.
For a start, it means balancing the books with no government grant – doubling down on the 2015 agreement between the then Mayor Boris Johnson and then Chancellor George Osborne, which saw Whitehall funding progressively removed, in contrast to the government support provided for public transit in virtually every other major city in the world.
Secondly the government is looking for “further operating efficiencies” – cutbacks, in everyday language – from April this year, plus an ominous “assessment of future service levels”, a review of capital spending including modelling the impact of reducing investment by up to 30%, and a list of “non-operational assets”, land and property, for possible sell-off.
There is some respite. TfL will not be expected to finance major capital projects “solely” from operating revenues – think Crossrail’s £19 billion price tag – and transport secretary Grant Shapps has also recognised that TfL needs the ability to make long-term investments to “maintain essential services and support the economic recovery”, as well as short-term help.
But capital funding priorities must be agreed “in advance” with Shapps’s department, TfL must prove itself a “reasonable” decision-maker – a side-swipe perhaps at Mayor Khan’s four-year fares freeze – and the plan must also consider the “optimum size for TfL” and new “governance/regulatory frameworks”.
What will City Hall and TfL make of these prescriptions? Unlike the government review of TfL finances commissioned from KPMG in July, which has still not seen the light of day, Khan’s own independent review has been published – and it sets out some clear differences.
Firstly, it suggests that Whitehall is over-optimistic in looking for financial stability by 2023, a conclusion the government will be under pressure to accept, given the latest collapse in passenger numbers.
The review assumes a continuing funding gap of around £2 billion a year, similar to the assumptions in TfL’s 2021/22 budget plans. This suggest shortfalls of £3.1 billion in 2021/22, £1.8 billion in 2022/23, and between £1.5 and £2 billion thereafter. Bridging that gap without government grant will take until at least 2025, it says: “Our approach gives time for a ‘new normal’ to be understood post-pandemic and for measures to be implemented…this is unlikely to be by April 2023.”
While the review highlights the cost of TfL’s “outdated and expensive” pension scheme and free travel for 60-65s, many of whom are in work, it rejects suggestions that TfL’s wage bill is out of kilter with comparable organisations. Senior managers’ pay, it finds, is overall 20% below the market position.
It also rules out significant cuts to service levels, maintenance and renewal, conjuring the prospect of Londoners left “without accessible public transport” and a return to the days of “misery” lines, as the Northern Line was nicknamed in the 1980s and early ’90s. And it warns against radical reorganisation: “Retaining an integrated transport authority should be the starting point – there is no evidence for a better alternative.”
The review’s answer? A combination of fare increases linked to earnings, government grant for major capital projects and new revenue – including higher Council Tax, new road user charges and a possible slice of VAT take in the capital or a portion of Vehicle Excise Duty, currently levied on London’s vehicle owners but spent only on roads outside the capital – plans already on Khan’s agenda.
Senior figures at TfL, including commissioner Andy Byford – a co-author of the review – have stepped up the call for the organisation to be treated more like national agencies such as Network Rail and the Highways Agency, with long-term funding, while Shapps himself told the House in November that he looks forward to a settlement with “London given more control over key taxes so it can pay more costs of the transport network itself.”
But what price will be exacted in return for that longer-term sustainable settlement everyone wants, and what will that mean for local political accountability?
For Khan’s reviewers, additional scrutiny is essential “to ensure that TfL is not marking its own homework”. They suggest a beefed-up role for its existing Independent Investment Programme Advisory Group, extra assurance via the national Office of Rail and Road, or even a new statutory monitoring body. The TfL board, chaired by the Mayor, “must ensure that it has oversight of these processes”, the report says.
The government, which has already, according to reports, threatened Khan with a direct takeover of TfL if bailout conditions were not agreed, may take a different view. The battle over the future of public transport in London is far from over.
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