The pandemic has exposed a fatal flaw in London’s transport funding model. Our network has a greater reliance on fares income compared to many other metro systems in international cities and, as a result, has faced significant financial challenges due to the fallout from Covid-19.
In the longer term, Transport for London (TfL) will need to diversify its sources of funding to ensure that it can effectively operate and maintain its existing infrastructure while expanding the network to help meet challenges around boosting connectivity, unlocking land for housing development and achieving net zero ambitions. But London lacks the powers to deliver adequate stable investment streams, and there is now a very real risk that political problems between Whitehall and City Hall mean this situation will remain unchanged.
Pre-pandemic, the picture was already challenging and highly politically charged. Periodic grant agreements for TfL and, more recently, periodic agreements for the Greater London Authority (GLA) to retain a portion of business rates revenue for transport spend have made it difficult for TfL to plan for the future. The Mayor’s decision to freeze fares has also been the subject of intense political fighting both before and during the pandemic.
Decisions by both the government and the Mayor have led to mistrust on both sides, culminating in the Department for Transport (DfT) placing two of its representatives on TfL’s board. But it is now vital that the GLA and Whitehall work together constructively to solve short-term operational issues as well as problems around long-term funding for new investment in the capital’s transport network. After all, the success of London in the future is inherently linked to a world class transport system.
The government could go down the route of taking over the operations of London’s transport network, but history suggests this would not lead to good outcomes. A better landing place, that would be a win-win for all parties, is to give London further fiscal devolution.
Further fiscal devolution would mean London has the powers to raise a greater proportion of funding for its transport needs, freeing up government resources for other priorities. Moreover, the political challenges of implementing new funding mechanisms would lie with London’s politicians – although the government could, of course, still retain some control by putting appropriate limits on tax raising powers to ensure that businesses are not targeted too punitively.
This kind of settlement would also mean Londoners benefit from a transport network that has a much more certain future with a bigger diversity of funding sources – and there would be scope to tap beneficiaries of investment to ensure taxation for transport is fairer in the future.
This is not a radical proposal. It is very similar to what was proposed in the first report of the London Finance Commission, which was created by the Prime Minister when he was Mayor of London. It is now time for national and local policymakers to make it happen.
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