Government sets tough terms for £1.08bn emergency TfL bailout

London mayor Sadiq Khan and rail industry leaders have called for a new long-term sustainable funding model for Transport for London (TfL), after the latest emergency £1.08bn government bailout came with a string of tough conditions and saw the current revenue-based funding model described as "not fit for purpose".

TfL income revenue from fares slumped by 90% during the Covid pandemic, as passengers were forced to stay at home during months of lockdown, and passenger numbers have still only recovered to around 65% of pre-pandemic levels.

The latest emergency settlement of £1.08bn agreed this week (1/6/21) will provide financial support for TfL until 11 December 2021, and follows the two previous emergency support packages agreed in April and October 2020 - taking the government’s support to TfL since the first lockdown in March 2020 to over £4bn.

However, the latest deal comes with a string of tough conditions, including TfL and London’s mayor being forced to find £300m of savings in 2021/22, identify new revenue sources of between £500m to £1bn each year from 2023, push ahead with controversial plans for driverless trains, review service levels that could mean severe cuts across the TfL tube and bus network, and also review and potentially slash its current pension scheme for TfL staff.

Transport secretary Grant Shapps said: “This £1.08bn financial package will support London and its transport network through the pandemic, and ensure it is a modern, efficient and viable network for the future. Throughout this process, the government has maintained that these support packages must be fair to taxpayers across the UK and on the condition that action is taken to put TfL on the path to long-term financial sustainability. As part of today’s settlement, the mayor has agreed to further measures that will help ensure that.”

Under the new deal, Sadiq Khan and TfL have agreed to:

• Deliver £300m of savings or new income sources in 2021 to 2022;
• Identify new or increased sources of revenue for TfL of between £500m to £1bn each year from 2023;
• Prepare a plan to accelerate TfL’s existing modernisation programme of £730m by April 2023;
• Review TfL’s generous pensions scheme;
• Prepare a revised medium-term capital investment programme;
• Set aside at least £100m to continue the delivery of healthy streets and active travel programmes;
• Carry out a joint review with government of demand on London’s transport network to ensure service levels are appropriate.

The mayor has also agreed to work collaboratively with DfT on a joint programme for implementing higher levels of automatic train operation on the London Underground. Over the course of this funding period, the mayor and TfL will be expected to make progress towards the conversion of at least one London Underground line to full automation but with an on-board attendant. 

Responding to the deal, London mayor Sadiq Khan said: “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 £500m to £1bn 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% 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% and increased its cash balances by 13%. 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.”

Andy Byford, London’s transport commissioner, 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. It is vital that we 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.” 

Labour’s shadow transport minister Sam Tarry said: “Sadiq Khan has done well to kill off the very worst of the punitive conditions the government wanted to impose on Transport for London, but this funding package still falls well-short of what Londoners and our economy needs. It is adding insult on top of injury to expect TfL to stump up an extra £500m every year without unfairly punishing Londoners for doing the right thing by not using public transport during lockdown.

“The government needs to set out substantial, long-term funding for TfL that will enable it to plan for the future, secure thousands of jobs across the capital and continue to build a transport network that’s the envy of the world. Once again, this government has opted to play politics with TfL rather than giving it the backing it needs.”

Darren Caplan, chief executive of the Railway Industry Association, also called for a long-term funding solution to be agreed. He said: “It is positive to see a further funding deal agreed between the government and Transport for London (TfL), which will ensure key rail services can continue in the capital, and help boost the economic recovery from Coronavirus.

“However, given the long-term nature of rail projects and the importance of certainty around upcoming work for the supply chain, transport bodies such as TfL cannot continue to operate on a series of short-term funding packages. The Railway Industry Association and our members have long called for a multi-year financial settlement for TfL, similar to Network Rail’s five-year Control Periods, which would provide the certainty that rail businesses need to support London’s railway, and deliver critical upgrades, as increased passengers and freight return to the network. 

“So to help UK rail businesses recover from the pandemic and ensure rail services continue to improve for Londoners too, we hope to see a long-term solution agreed between the government and TfL as soon as possible.”