London’s public transport faces years of managed decline

Transport for London (TfL) has outlined more details about the cuts needed and how it will charge more for services in order to deal with the hole in its income caused by the pandemic and rising inflation.

TfL currently has a funding deal that expires just before midnight tomorrow (Friday 4th February) and is in talks to secure both a funding deal to keep services running this year and also a commitment to medium-term investments to keep the services running in years to come.

(c) TfL

At the moment, under TfL’s proposed “managed decline” status, London’s public transport network would be kept running, but with reduced maintenance and investment, over time, parts of the service will need to be closed to avoid safety problems.

TfL is already looking at making cuts in services to reduce costs, although the fixed cost of running the tube means that cuts to services generate fairly modest savings. Despite the hype, switching to driverless trains at some point in the future has a negligible impact on the cost of running a railway as so much of the cost is embedded in providing the infrastructure.

The main concern is maintenance budgets though.

At TfL’s board meeting held yesterday, TfL’s Chief Finance Officer, Simon Kilonback, noted that in an ideal situation, maintenance is carried out at the optimum time for the asset, but that requires long term assurance that funding will be available to pay for the works. If they have to carry out short-term patches of equipment to keep it running, that tends to be some 20-30% more expensive than planning long-term maintenance.

So on the one hand there’s less money to pay for maintenance, but with a lack of long term funding commitments, the cost of maintenance that is carried out ends up being more expensive, so it’s a double-hit to the network.

This starts to affect the transport network as buses and trains have to be taken out of service as they reach a point where they could be unsafe to keep running. However, as TFL’s Commissioner, Andy Byford noted, that raises the pressure on other services to take up the slack, so they need more maintenance than planned for. Decaying assets also means higher costs from more regular safety inspections that need to be carried out.

This cascades along the transport network as fewer trains or buses in service means more people using the ones that remain, leading to ever higher maintenance costs.

However, an unreliable transport network drives people to other forms of private transport, and that means at a time of higher costs, TfL has less fares income, so a spiral of decline begins.

You only have to look at what the London Underground looked like in the late 1970s to mid-1980s when it was starved of investment, in part due to declining population in London, but the service saw faster declines in passengers as people simply couldn’t rely on the tube to get to work.

As Andy Byford put it, “you cut back on infrastructure and cut back on services at your peril”

It took about three decades of investment to recover from one decade of decline.

The other pressure on TfL’s financial planning at the moment comes from a place that affects us all – inflation.

Simon Kilonback said that in a normal year, inflation pushes TfL costs up by £200-300 million, but they expect that the current rates of inflation could push up TfL’s costs by £600-700 million, and TfL “can’t deal with that”. Wage bills will also rise higher than had been planned, thanks to the rise in National Insurance, so another £16 million hit to the budget.

The funding uncertainty is also hitting the bus network. The buses are run by private companies, who sign 5-7 year contracts with TfL. There are around 600 contracts in total, and since they had to pause renewals, there are now 25 contracts in suspension. The services remain being provided to customers, but neither TfL nor the bus company can make any medium to long term plans for them until the funding situation is sorted.

TfL’s Deputy Commissioner, Gareth Powell outlined that’s some £400 million worth of contracts on hold at the moment, and also as contracts are renewed with obligations to remove older polluting buses, they are unable to confirm with bus manufacturers their commitments to order 80-90 new buses, with the obvious impact that has on manufacturers in Northern Ireland and the rest of England.

This comes to the crux of the argument TfL is putting forward, that as so much of its capital investment budget is spent buying products from UK manufacturers, it’s in the governments own best interest to support TfL, as that creates jobs across the rest of the UK.

Many of TfL’s suppliers, for whom TfL is their largest, or even, their only supplier need long-term certainty to rebuild their own businesses. If they struggle or go under, then TfL has to look elsewhere for supplies, and that could result in TfL facing delays or higher costs, or both.

Andy Byford summed it up “You can’t have a UK recovery without London. You can’t have a London recovery without a viable, properly funded transport system”

On a positive note, he said that the ongoing negotiations with the Department for Transport (DfT) are looking positive in securing a long term capital investment agreement. TfL is working on a list of shared priorities with the Treasury and DfT for the major assets managed by TfL, not just the tube, but also the national road network that TfL pays for so that TfL has a vision of where focusing work is also likely to secure government funding.

That does sound like TfL will have the money, but it’s the DfT that’ll decide how it’s spent. This feels partially like a return to the pre-TfL days when London’s transport priorities were decided in Whitehall rather than City Hall.

The big issue that’s regularly being raised though is that, unlike most major transport networks, TfL is unusually highly dependent on fares for its income and received very little running cost subsidy from the government. Most cities receive a subsidy because the economic gains to improving public transport generally outweigh the cost. In essence, governments usually make a profit from the subsidy.

With TfL predicting that fares income will remain subdued rising to maybe 80% of pre-pandemic usage, this leaves a running £1.5 billion gap between where it expected its income to be, and where it’s likely to end up. TfL needs to find money from somewhere to fill the gap between the cost of operating a service and its income. Deep service cuts have been outlined, but that still leaves at least £500 million per year to find, and that needs to be found within a couple of years under the current agreement with the DfT.

As previously announced, there are plans to change some of the fares, which will bring in around £100 million a year by 2024/25, and around £180 million from the rise in London council taxes. The bulk of the funding gap, some £300 million is likely to come from emissions charging on road users.

However, none of these are guaranteed, as they need to pass an equalities impact test, and could be challenged in court by affected groups.

So the key takeaway is that TfL faces a long period of uncertainty, and for any organisation that needs to make long-term decisions, that’s the worst-case situation to find yourself in.