Transport for London (TfL) has reached an agreement with the government for extended financial support until 11 December 2021.
London’s Transport Commissioner Andy Byford said: “The pandemic – during which our staff have worked so magnificently to keep London moving – has shown our financial model, with such a disproportionate reliance on fare revenue, to be not fit for purpose.
“We are working hard to rebuild revenue through attracting people back to our services with nearly 60 per cent of pre-pandemic ridership already travelling again. Today’s funding agreement with the government provides £1.08 billion in base funding, and further support should our passenger revenue income be lower than forecast, until 11 December 2021, to enable us to continue to run near full levels of service to stimulate London’s recovery and deliver a host of improvements like the Elizabeth line, Northern line extension and expansion of London Overground.
“It is vital that we also use this period to agree a longer-term settlement so that we can plan effectively for London’s future and deliver maximum value for money through our contracts and supply chain.
“The conditions placed on us by the government agreement, and the amount of funding we will receive, means 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.
“We will work through this while protecting front line services to deliver what London needs and to play our full part in recovery, decarbonisation, improving air quality and promoting active travel.”
The agreement between TfL and the Department for Transport (DfT) will support transport services in London for the period from 29 May 2021 to 11 December 2021.
The Funding Package, which will contribute towards TfL’s revenue loss due to reduced passenger numbers using TfL services as a result of the pandemic, is primarily an Extraordinary Support Grant of £1.08bn payable under section 101 of Greater London Authority Act 1999, paid in six instalments commencing on 7 June 2021.
In addition, the Funding Package recognises that there are material factors beyond TfL’s control that give rise to a high level of uncertainty in forecasting passenger revenue during the 2021 Funding Period, particularly as government guidance on dealing with the pandemic develops.
Therefore, the government will ‘top up’ TfL’s revenues with additional grant payments if they are lower than a pre-determined passenger revenue forecast. Conversely, if TfL’s revenues are higher than the pre-determined passenger revenue forecast, TfL will be required to repay that excess at the end of the 2021 Funding Period. This provides TfL with certainty that it will receive income equivalent to £1.78 billion in passenger revenue over the 2021 Funding Period in addition to the Extraordinary Support Grant of £1.08 billion.
This pre-determined passenger revenue scenario is broadly consistent with the revenue forecast in the TfL Budget for 2021/22, published in March 2021.
As part of the Funding Package, TfL commits to deliver savings and/or new income of at least £300 million in 2021/22. However, when taking into account the amount of funding available to TfL in the Funding Package, there remains a funding shortfall compared with the TfL Budget for 2020/21. This means that TfL will, in practice, need to deliver savings and/or new income of around £900 million over the course of the year. This is expected to be met through a combination of measures, including utilising cash reserves, additional non-passenger income and reduced or deferred costs. These additional savings are incremental to TfL’s existing efficiency plans.
The Funding Package assumes that TfL will maintain useable cash reserves of £1.2 billion throughout and at the end of the 2021 Funding Period, in line with TfL’s current liquidity policy.
Over the course of the 2021 Funding Period, TfL will be supported by the DfT in implementing a programme of work that would allow TfL to reach a financially sustainable position as soon as possible, with a target of no later than April 2023 and a declining trajectory in the meantime of temporary government grant support. TfL will also be required to make progress on longer term reforms which are likely to be implemented beyond 2023.
The programme of work will include the following initiatives (among others):
- Identification and consultation on new or increased income sources for the value of between £0.5 billion-£1.0 billion per annum from 2023;
- A joint review of demand to inform future service level requirements and potential changes from 2022/23 onwards;
- Preparation of a revised medium-term capital investment programme, which will be confirmed with government through the 2021 Spending Review;
- A review of TfL’s pension scheme and potential reform options with the aim of moving TfL’s Pension Fund into a financially sustainable position;
- A DfT-led joint programme on the implementation of driverless trains on the London Underground;
- A TfL plan for housing delivery through a dedicated commercial property company;
- A joint review of options for longer term reform of the funding framework for TfL, including governance and oversight.
Mayor of London
The Mayor of London, Sadiq Khan, commented on the agreement: “I have tried to build bridges with the government as this is in the best interest of Londoners and our businesses, but I want to be honest with Londoners: this is not the deal we wanted, but we have fought hard to get it to the best place possible and to ensure we can continue to run vital transport services at this crucial time for our city.
“After some extremely tough negotiations, we have successfully managed to see off the worst of the conditions the government wanted to impose on London, which would not only have required huge cuts to transport services, equivalent to cancelling 1 in 5 bus routes or closing a Tube line, but would have hampered London’s economic recovery as well as the national recovery.
“The government is still insisting that TfL look at options to raise a further £500 million to £1 billion of revenue per year by 2023. I have been clear to the government that there are very few options to do this and forcing TfL to impose draconian additional measures on London would be unacceptable. So, I will continue to work with the government to identify an appropriate source of funding. But I am hopeful that, as London bounces back from the pandemic, and income from fares continues to increase, we’ll be able to avoid introducing any unfair measures on Londoners, as the additional fares revenue may be able to meet government demands.
“It’s important to remember that TfL only needs emergency funding from the government because its income from fares dropped by up to 90 per cent because Londoners followed the rules by staying at home and avoiding public transport during the lockdown. In my first four years as Mayor, I reduced TfL’s deficit by 71 per cent and increased its cash balances by 13 per cent. TfL is a world-class transport authority.
“TfL is also being forced to undertake some early development work on the business case for driverless trains. However, I’ve made it crystal clear to Ministers that we will object to any future requirement to force TfL to implement driverless trains on the London Underground. It would cost billions of pounds and would be a gross misuse of taxpayers’ money at this critical time for our country.
“This short-term settlement is yet another sticking plaster, so I will seek to work with the government over the months ahead to agree a longer-term funding deal for TfL that is both fair and right for Londoners and the whole country. I’ve repeatedly said that I want to build bridges with the government and work constructively with Ministers in London’s interest – and the national interest – as we seek to recover from the pandemic. This remains the case, but I’ll always stand up for London and be honest with Londoners when the government makes decisions that could negatively impact our city.”
Two major transport unions immediately criticised the agreement.
TSSA general secretary, Manuel Cortes, said “Londoners are being punished again for having the audacity not to vote for a Tory Mayor. Cuts to TfL is the last thing we need when we should be encouraging people back onto public transport once we have beaten Covid.
“The rules for this funding package have been driven by Tory ideology rather than fairness or good sense. The pandemic had the same devastating impact on the finances of TfL as on the privatised rail companies. Yet TfL have had to beg for scraps of funding, which come with draconian conditions attached whilst the private rail companies have been bailed out for 18 months with no strings attached. It’s one rule for the fat cat shareholders in train operating companies and another for publicly owned Transport for London!
“We need people to use high quality public transport as part of our recovery – especially so if that recovery is to have a positive environmental impact. It’s hard to see how our country can effectively decarbonise without shifting travel from our roads to public transport.
“The future is bleak for London’s transport system. These brutal cuts will hit TfL hard. But our union is crystal clear, any attempt to use compulsory redundancies to implement these cuts will be met with industrial action ballots.”
Finn Brennan, train driver’s union ASLEF’s organiser on the Underground, said: “Bitter and protracted industrial disputes are an inevitable consequence of the government’s decision to target London Underground workers.
“Throughout the pandemic, workers on TfL turned up for duty every day. They risked their own safety, and that of their families, so that essential services could continue to operate in our capital city.
“We knew that the words of praise from government ministers were nothing but hypocritical cant. Their real attitude has been shown by this decision to attack the pensions, job security, and working conditions of those they called heroes just months ago.
“London Underground staff showed enormous courage, determination, and resilience in keeping services running during the pandemic. They will demonstrate those qualities again fighting to protect their conditions at work.
“High quality, reliable public transport will be vital to London’s economic recovery. In deciding to pick a fight with the workers who deliver it, the government have made a serious mistake. The consequences will be protracted and bitter industrial disputes at a time when the focus should have been on rebuilding confidence in using public transport.”