TfL says the Covid-19 pandemic has shown that its current funding model, under which it no longer receives an operating grant from the government, was not fit to withstand the pressures brought by the pandemic. Around 70% of TfL’s income comes from fares revenue, compared with 38% in New York and 47% in Madrid, and London is one of the only major cities in Europe without a government grant to cover its day-to-day operations.
TfL made cost savings of almost £1bn over the past four years, and had cash reserves of nearly £2bn before the pandemic. As recently as March, TfL was on track to reduce its like-for-like operating deficit for the fourth consecutive year, with a plan to return an operating surplus during the 2022-23 financial year.
However, with passenger numbers dropping by more than 90% at the height of the pandemic in March, the government was forced to provide financial support of up to £1.9bn in May in the form of a £1.6bn initial grant and loan package and a further £300m contingency, to ensure transport services could continue to operate through to October.
Since then, TfL says it has worked to meet the conditions set out within the government’s funding and financing agreement and returned services to near pre-pandemic levels. These measures, along with the minimisation of costs, means TfL now expects to use only £1.5bn of the available £1.6bn, and does not need to use the £300m contingency funding.
TfL published an emergency budget in May, which set out the need for up to £1.9bn for the first half of 2020-21 and £3.2bn for the full financial year, based upon early estimates from April of the impact of the coronavirus pandemic on TfL's revenues.
The revised budget, published on July 24, anticipates TfL needing up to £3.5bn for the full year, up to £300m more than previously outlined in emergency budget.
Due to elements of the revenue impact and capital investment moving to later in the year, TfL will need up to £2bn funding for the second half of the year. While ridership is expected to remain significantly down for the foreseeable future, there is still uncertainty about how quickly it could recover. TfL says passenger income could vary within a range of approximately +£500m to -£235m.
A further £2.9bn will be required during the 2021-22 financial year to enable the transport network to operate effectively. TfL’s budget assumes that there will be no new borrowing during 2021-22 as this would require further funding support to make the necessary repayments.
The revised budget would see TfL invest £1.4bn in capital projects across London, including a number of rail projects:
- continuing the delivery of the Northern Line Extension and Barking Riverside Extension
- ensuring safety remains paramount across the network by continuing to deliver a package of work which will support TfL’s Vision Zero commitment for all deaths and serious injuries to be eliminated from London's transport network by 2041
- finishing work on step-free schemes at nine London Underground stations, with Cockfosters and Amersham set to be completed in the coming months
- progressing work on a new fleet for the Piccadilly Line and Docklands Light Rail (DLR), while continuing renovations to existing trains so they can remain in service for longer, and
- working with the Department for Transport (DfT) to develop the business case for further rail devolution of suburban rail services in London from franchises to TfL.
However, TfL has also set out how it proposes to reduce capital investments, resulting in a number of schemes being paused.
TfL says it needs longer-term certainty regarding government funding to allow investment in further schemes, including the proposed DLR extension to Thamesmead, the Bakerloo Line extension and Crossrail 2. TfL says it will continue its discussions with government, whilst being realistic about what will be affordable over the next decade. Where possible, TfL will continue safeguarding and feasibility studies on these schemes.
“Prudent financial management had placed TfL on the cusp of breaking even for the first time in its history and with strong financial reserves,” says London’s new transport commissioner, Mr Andy Byford. “However, the pandemic revealed that the current funding model, with its unusually heavy reliance on fare revenue, simply doesn’t work when faced with such a shock.
“Inevitably, very difficult choices have had to be made about the pace at which projects can be funded and completed. In the current climate, some projects will have to be paused. We have a real chance, through our supply chain, to support jobs across Britain and help the country recover from the pandemic through a wide range of ‘shovel ready’ projects that support economic growth and build the green economy.”
The revised draft budget will be considered at the TfL Board meeting on July 29.