Mayor of London to raise council tax to fund public transport services

A previously announced plan to raise council tax bills in London to help fund Transport for London (TfL) as it recovers from the pandemic has received government approval.

As part of the negotiations with the government over TfL funding, last December, the Mayor proposed plans to increase council tax in London by £20 a year over the next three years.

TfL is required to both cut costs at a time of high inflation and also raise revenues at a time of reduced passenger numbers, and has been tasked with finding an additional £500 million a year of income. The council tax rise is expected to raise approximately £172 million each year to help close the gap between TfL’s revenues from fares and its costs at a time when travel is still depressed by the post-pandemic recovery.

In a statement, the government’s Department for Levelling Up, Housing & Communities confirmed that it has approved the decision by the Mayor to raise the council tax rate by up to £20 on Band D bills.

The announcement, as part of a wider Local government finance policy statement, added that “this request will not be opposed, the government is disappointed that London taxpayers are having to foot the bill for the GLA’s poor governance and decision-making.”

The statement didn’t elaborate on which poor decisions were taken at a time when TfL’s income collapsed due to a lack of passengers who were being told by the government to avoid using public transport.

TfL is also looking at cutting costs by a further £600 million a year from 20205/26 to address the reality that passenger numbers could take decades to rise to the pre-pandemic levels, and only thanks to population growth than a mass return to daily commuting.

As TfL is unusually highly dependent on fares income and doesn’t receive a central government grant, it will also be looking at other ways of covering the gap between costs and income, and fare rises over the next few years are likely to be substantially above inflation, especially as the government has already capped the national rail element of TfL’s income.

TfL says that it remains on target to achieve operating financial sustainability in 2023/24, but still faces significant risks, mainly due to inflation and the economic situation.

A spokesperson for the Mayor of London said: “The Government’s 2015 removal of its operating grant made TfL over-dependent on fares income, which created a financial emergency when the pandemic hit. Passenger numbers have increased but are yet to reach pre-Covid forecasts. TfL was previously on a solid financial footing thanks to Sadiq.”

“The GLA has been forced to consider raising council tax by the Government to keep our Tubes and buses running. This is an extraordinary attempt to rewrite history by the very Government who insisted the Mayor raise over £500m a year as a condition of emergency funding for TfL – including explicitly proposing that council tax was raised to do so.”

In related news, the Department for Levelling Up, Housing & Communities also confirmed that it will introduce a limit on council tax rises from April 2023 of no more than 3% per year, unless the councils’ hold a local referendum first. That limit will apply to both London councils and the GLA.