If you tell someone they need to lose weight and they respond by saying that, in that case, they’ll chop their leg off, you’ll know you’re dealing with a child – or at least with someone playing games. That’s how it often seems to the government when dealing with Sadiq Khan over the funding of Transport for London during and beyond the pandemic.
Khan’s defenders often point to the train operating companies (TOCs) that run the national rail services and say that, because they were funded without question to continue providing services during the lockdowns, the same treatment was due to TfL. But the comparison is all wrong.
The TOCs are mere creatures of the government – they do what they are told (and paid) to do and almost nothing more. TfL, by contrast, is politically and financially accountable to the Mayor of London. For advocates of London government – I count myself as one – that is an important distinction.
Khan’s financial decision-making since taking charge of TfL had been poor and now he was expecting to be rescued from that by an unconditional, indefinite handout. To understand the government’s anxiety about making that offer, one needs to have a proper understanding of the Mayor’s management of TfL between his election in May 2016 and the arrival of the pandemic nearly four years later.
He came to office on two dangerous pledges. One was a fares freeze – at a time when public transport was heaving with people and there was money there for him to collect if he wanted to.
There is a logic to increasing TfL fares by at least RPI inflation in the good times. As Londoners have recently learnt, London Underground operational staff are about to get a windfall pay rise of perhaps eight per cent because of the rise in RPI inflation, and pay is not the only cost-pressure TfL experiences because of it. If income doesn’t rise to match expenditures, the whole financial edifice comes apart at the seams. Khan would have had a better understanding of that if he had accepted the politically neutral briefings in the run-up to his election offered by TfL to all major candidates, but he declined.
So he began his mayoralty with an unseemly row with TfL over the projected cost of the fares freeze. TfL estimated it at £1 billion over their five-year business plan. The Mayor argued it was “only” £600 million over a four-year Mayoral term. For the sake of argument, let’s accept the Mayor’s view on that.
He then made the position worse by introducing the Hopper bus fare, previously a Liberal Democrat policy. It’s true that you don’t pay an extra Tube fare when changing trains on a single journey so it seems logical to extend that to the buses. But of course bus and Underground fares are very different (Underground fares are zonal and much higher than the flat bus fare) so to an extent the fact that two bus journeys required two fares, even if it seemed unjust, was built into the existing fares structure.
TfL’s advance estimate of the cost of the Hopper fare was a fairly modest £35 million a year, but within a year they announced (a bitter success) that there had been 100 million Hopper trips in the first twelve months. Also, TfL found it had suddenly lost the capacity to quantify the income foregone. The calculation is not straightforward, but any estimate must start with not £35 million a year but something closer to 100 million, multiplied by the bus fare of £1.50 or £1.55 a trip, so a real cost of up to £155 million – let’s be generous to the Mayor and say £130 million a year.
The result was that the subsidy to buses, which had risen to £600 million a year under Ken Livingstone and was reduced to £450 million under Johnson – not through cuts to bus mileage, but because of gentle, but politically brave, annual fares increases – mushroomed to £550 million a year under Khan, and even that was combined with a three per cent reduction in bus mileage.
Khan’s second dangerous pledge was that there would be no strikes on the Underground on his watch. That is easily achieved – you just give in to union demands – but it’s expensive.
One consequence of this was a considerable growth in the number of Tube drivers. The system needs about 3,000 and the total rose to exceed 4,000 – say at £55,000 a head: so an excess pay bill of £55 million a year. It’s Khan’s attempts to reverse some of that that is the cause of the current Night Tube strikes.
To Khan’s credit, he did embark on a reduction in managerial head count, but severance costs insisted on by unions mean the benefits to cash flow take a couple of years to come through so we can set that at nil in the four-year period in question.
So that’s about £335 million a year that Khan had let go before the pandemic hit. But there’s more.
A less well-noticed change in emphasis from Khan also had financial consequences for TfL that he kept quiet about. Boris Johnson set up a programme of developing new housing on TfL land that started to produce results in Khan’s first term. Johnson’s purpose was to raise funds for TfL’s investment needs. Of course, new housing for sale would need to be accompanied by enough new affordable housing to meet the requirements of the Mayor’s London Plan.
Khan increased that affordable housing requirement to 50 per cent specifically for TfL. In doing so he diverted surpluses intended for transport towards his affordable housing ambitions. Admittedly, that’s the sort of big decision on priorities that a Mayor is elected to make. But doing so without explaining – perhaps without understanding – that he was blowing yet another hole in TfL’s business plan was wrong.
Crossrail too burst through its budget on Khan’s watch. Nobody told him, he says, and he never asked, so it wasn’t his fault.
Nobody believes that the Mayor from his own resources could have coped with the pandemic’s effect on TfL. Government support was needed. But the history of unforced errors, revenue foregone and refusal to accept responsibility for failure to deliver infrastructure that he had been elected to manage all fed into a government view that Khan needed watching with taxpayers’ money.
That wariness was confirmed early on when Khan started threatening to have TfL declared effectively bankrupt under section 114 of the Local Government Finance Act 1988 (“I’ll cut my leg off.”). What the government wanted to hear was something along the lines of a deal: they would help out if Khan showed he was willing to do something to bring TfL’s finances, which he had been elected to manage, back into some sort of order: action on fares, on concessions, on pay. All these are much more generous than elsewhere in the country (and it was the rest of the country that, through taxation, would be contributing to Khan’s subvention).
However, the pandemic had delayed Khan’s re-election campaign by a year, so he was unwilling to take any steps that he thought would threaten his prospects. His defenders see this as a political manoeuvre by the government, to damage Khan’s electoral chances. But I can share a little secret: the government really, really didn’t believe that Shaun Bailey was going to win. What they wanted in the crisis brought on by the pandemic was some grown-up engagement. What they got was childish grandstanding.
And they quickly got used to Khan’s threats of self-mutilation: he’d close a Tube line, run down the buses, take the iconic New Bus for London (commissioned under Johnson) off the streets. Fine public servants like the commissioner and finance director of TfL, both with experience of successfully cutting deals with government, were dragged into this sort of brick-throwing rhetoric.
I have great affection for TfL and its staff from my time working with them. Nobody would like to see them put back on a secure, long term course more than I would. But I have sadly come to the view that repeated crises alleviated by short term settlements, with conditions bitterly fought over until the last minute, suit Khan very well. He can blame the government for any unpopular steps he has to take, while continuing to wash his hands of any real responsibility for what may happen. Meanwhile, the government, like most Londoners, have learnt largely to ignore the noise, while doling out now a cool £5 billion to his TfL.
It’s hard to say it, but Livingstone, who took the trouble to understand how TfL worked, and who knew how to cut a deal with government, would have been preferable.
Daniel Moylan is a Conservative member of the House of Lords. He was a TfL board member for eight years during Boris Johnson’s mayoralty, half of that time as deputy chairman. Follow Daniel on Twitter.
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