In just a weeks time, unless a deal is struck, TfL will yet again, start to run out of money and will have to look at shutting down its services. Ever since the pandemic wiped out TfL’s income, while at the same time the government told TfL to keep operating its services, the organisation has been on a drip-feed of money with strings attached. A lot of strings.
The bailouts for other transport organisations and other industries were given with minimal conditions, as is to be expected during an emergency. Sometimes you simply don’t have the time to thrash out the small print, and just have to open a firehose of cash knowing some will be wasted, but that the alternative is far worse.
However, TfL, having long been hampered by the lack of the usual operating subsidy that major public transport networks receive, has also been hammered by a long list of demands from the central government, and the Department for Transport (DfT) in particular.
Using a crisis to force through changes that might otherwise struggle to get approved in good times is not in itself a bad thing. It’s quite sensible in fact. What’s undeniably odd though is how London is being singled out for the level of punishment that isn’t happening to other transport providers.
For reasons I’ll explore below, public transport is often partially subsidised by national governments because the social good that comes from it is better than the alternative of long road jams as people drive to work. It sits in the realm of government spending that encompasses such things as road building, healthcare, education, etc – something that should be funded by the government for the wider good of society as a whole.
London’s transport is unusual in that it lacks a general tax based subsidy, and while TfL is able, indirectly, to claim business and developer taxes, it’s still a very narrowly focused revenue stream, and not as broadly based as in most countries. That means TfL is very heavily dependent on fares to cover its running costs — as much as three-quarters of TfL’s income comes from people paying to travel, compared to as little as 40% in say Paris or New York.
To close the gap between its running costs and its income, TfL either has to cut services or raise fares.
This is harder than it seems. Buses can be left in garages and staff laid off to cut those costs, but buses carry about twice the number of passengers as the tube/rail, and often in parts of London that lack alternatives, so cutting bus services hits more people and hits them harder.
Unfortunately, cutting rail services has a minimal impact on costs as so much of the rail network is capital intensive in terms of running it. Cut the number of trains by, for example, 10 per cent, and you’ll be lucky to cut your costs by more than a percentage point or two.
All the fuss about driverless trains, ignoring the multi-billion upgrade cost of the project, would shave at best a few tens of millions off TfL’s costs. Hardly worth the effort. And there are far more bus drivers than train drivers, but no one seems to want driverless buses.
I know as I write this there’s going to be a lot of “whataboutery” in the comments, what about this, or that, or the other. Most of the suggestions will shave insignificant sums off TfL’s running costs at often very high costs elsewhere.
Unless someone genuinely does know of a cost saving of £500 million a year that can be delivered with minimal impact?
Without affordable public transport, people who need to get to work will have to drive, with all the attendant problems that causes. Even if all cars are electric and aren’t pumping out petrol fumes, we still end up with gridlock in the crowded streets and nowhere to park when you get to your destination. But even with electric cars, particulate pollution from brakes and tyres is still considerable.
So, public transport is not just efficient, but also environmentally friendly – or at least, less environmentally bad than the alternatives. This is why most governments, except the UK’s tend to subsidise the cost of public transport. The downsides of not doing so are worse than the cost of doing so, and the overall benefits to society as a whole are part of the general good that we expect governments to fund from general taxation.
Increased levels of public transport still benefit the people who have to drive thanks to lower road congestion on their journey and the lower levels of pollution around their homes.
And less traffic noise. Remember the excitement as people were able to hear birdsong for the first time during the great lockdown?
So it can be argued that general taxes being used to reduce the cost of public transport is a good thing. But the UK government seems to be set on forcing more of the cost of public transport onto the travelling public at a time when there are fewer people travelling.
This has wider implications than it first seems.
If you’re a relatively well paid person in a nice home with a large living room or spare room to use, then working from home a few days a week is a pleasant experience.
Good for them, but a lot of white-collar workers who are on lower salaries will not have a spare room to work in. They are more likely to be in a flatshare with a couple of other people and won’t even have a living room, and may not even have all that much spare space in their bedroom to put up a table to work from.
For these people, working from home is a dreadful experience, and many are pleased to escape the room, even if only to the office. And the office probably has air conditioning.
However, despite people often saying “we’re working from home now”, shop workers aren’t. Nurses aren’t. Construction workers can’t build homes working from home. The person emptying your bins each week certainly isn’t doing that from home. A large percentage of people have to travel to work and are often also on a lower than average salary. Increasing the cost of public transport means the least able to afford it are also the ones being asked to pay more.
It’s worse though.
A lot of white-collar workers who can work from home are not just enjoying the lack of commute in general, most are substantially better off financially now that they don’t pay for season tickets to commute to work. If an oil firm made such an unexpected gain we’d be clamouring for a windfall tax. But the current position appears to be seeking to do the exact opposite – raise the cost of living for the people on the lowest wages, while allowing the already wealthier people to keep their unexpected windfalls.
That doesn’t sound like levelling up.
Is the rest of the UK being asked to pay for London’s transport?
One of the issues where the facts and public perception are a mile apart is whether the rest of the UK subsidises London’s transport. Any time I write about a transport upgrade in the southeast, I can guarantee there will be responses from people in other parts of the UK complaining that “their” money is being spent in London while they go without.
If that were the case, I’d be agreeing with them.
However, as has been reported so many times that it should be common knowledge, but it ain’t, London isn’t subsidised at all.
In fact, quite the opposite.
In 2019, the UK government received an average of £18,965 in taxes from each person in London, and spent £14,300 — so the government made a profit of £4,369 per person. Only the Southeast of England and East of England also recorded net profits for the government – the rest of the UK runs at a loss.
So the argument that the rest of the UK pays for London’s transport is backwards, it’s the other way round – London and the southeast helps to pay for the rest of the UK. The figures wobble a lot year on year, but on average, London makes a profit for the UK government of around £35-40 billion.
Although London contains some of the poorest parts of the UK in terms of borough deprivation, it’s still overall richer than the rest of the country, and one of the advantages of funding social good from general taxation is that both the costs and benefits can be spread out across the whole country. So London’s tax surplus supports government spending outside the southeast.
And that is a Good Thing.
Spreading out the costs means that you’re not dependent on local incomes to fund local services. Whenever someone rants that their taxes are subsidising London’s transport, I point out that if we went for a “local taxes to be spent locally”, that would make London richer and the rest of the UK poorer.
And that is a Bad Thing.
So, London makes a net contribution to the UK government’s income and in terms of transport costs, manages to do that without the sort of subsidy that most large public transport networks would require to run. That’s in part a benefit of the fact that despite the moans, TfL is a well run organisation, but also because it’s large enough and diverse enough that it can cross subsidise its operations.
In the years before the pandemic, the tube made an operational profit, while the buses ran at a loss. Coincidentally, the tube profit almost exactly matched the bus losses, so TfL was able to use the surplus from the tube to fund the cost of providing a bus network. And as the buses carry on average around twice as many people as the tube, this is a very good thing.
It’s also the reason why buses in London can be affordable. When Mayors in other cities complain that London’s buses are cheaper because London gets special treatment, they are usually claiming London is subsidised by the government, when in fact, London’s low prices are because it has a single transport body.
Outside London, there’s a lack of regulatory freedom to build large public transport networks.
Councils and Mayors lack the ability to raise local taxes and raise local property developer contributions, to apply local road charges, or to borrow debt to fund upgrades and expansions. These are why London was able to fund its public transport upgrades – it can borrow and raise taxes.
Note, that’s not the rest of the UK subsidising London, it’s Londoners who are funding London’s transport. It’s London using the regulatory powers it has to improve its local transport.
Yes, some capital investment is funded by the central government, as you would expect, but even the Elizabeth line (nee Crossrail) was only built because London was in a position to pick up 70% of the costs, even though all the taxes from the estimated £42 billion in GDP growth will go to the central government, not to London.
The rest of the UK needs the ability to have their own local integrated transport plans.
Normally, the phrase “integrated transport plan” is code that the politicians have run out of ways to fix things, so they appoint a transport supremo to sound like something is being done, when in fact nothing really happens, usually because so many different bodies have a say in what will happen.
However, remarkably, TfL managed to turn orthodox thinking on its head and showed that an integrated transport plan can work, when it’s deployed on a large enough scale by a single organisation and that the costs can be absorbed by enough people to make a material difference to the service being paid for.
It’s time that the rest of the UK was granted the same regulatory powers to have their own integrated transport policies. Those would likely not be city-based, but conurbation wide, as you’d need the scale to deliver the benefits. Allowing, for example, Greater Manchester to run local trains as well as local buses and trams, and to borrow against future income would allow the city to upgrade local transport based on local needs and aspirations.
I think they call that “levelling up”.
But first, we need to avoid levelling down London.
And that’s where to put it a bluntly…
…the politicians need to shut up.
The Mayor of London, Sadiq Khan has been on a rampage over the past year or so arguing that London is getting a raw deal from the central government over its finances. In purely financial grounds, he is absolutely right in this. He has however engaged in a very public spat with the government as opposed to engaging in productive negotiations.
One of the difficulties of having a Mayor who is antagonistic to the government is that the Mayor is outside of the Westminster bubble. Inside Parliament, for all the rhetoric and anger inside the Commons that we see on TV, a lot of politicians get on with each other relatively well as they work with each other on a regular basis and know that while strong disagreements exist, the public bluster is often just for the camera.
Unfortunately, when you have a Mayor outside Westminster making the public arguments, but lacking the private consensus building that other MPs have, you can end up with a Mayor who is going to struggle to negotiate with the central government.
This though is in turn not helped by having a Secretary of State for Transport in Grant Shapps who seems equally determined for some reason or other to punish London for the temerity of having been hit hard by the pandemic.
With lots of political rhetoric flying around, both sides seem to be, as it was recently put to me “negotiating by press release”, which is pretty much the worst way of negotiating anything, let alone a long-term funding settlement for TfL.
That TfL could do with some reforms is undeniable. But, looking at it from the outside, in general, it seems to be a pretty well run organisation.
This could be supported, or refuted by the mysterious KPMG report commissioned by the DfT early in the pandemic to look at TfL’s operations. It’s never been published. Even TfL’s bosses have only seen a heavily redacted version.
What is the DfT trying to hide?
If the report was damning about waste at TfL, then the report would have been published, in full, with a big press conference about how the government isn’t going to stand back and let this continue. But it hasn’t been published, and if anything it seems that the DfT would rather like it if everyone forgot it ever commissioned the report.
That suggests KPMG found a well oiled machine at TfL.
(if you have an unredacted copy, my contact details are here)
So why is the government trying to punish London?
This is the great mystery. Yes, there’s a lot of politics at work, and considering that many people think the South is subsidised by Northern taxes, there’s going to be a political cost to any deal offered to London. Wrongly as it happens, but this is reality, and we have to accept that any deal offered to London will cause howls of protest elsewhere.
A government that genuinely wants London to succeed, and in turn generate the tax surplus that the government can pump into its levelling up agenda would be doing everything it can to ensure London’s recovery supports the wider economy. Hindering London’s recovery in part by the practical action of nobbling its public transport, but also the perception that the government is hostile to London sends a very bad message to investors.
We’ve all been shocked by the pandemic, and many of us have had to change plans. In that TfL is not alone, and needs to adapt to changing work practices. As it should be mentioned, do the unions. The unions, while they have a job to do in supporting their members, cannot sit in their own ivory tower pretending nothing has changed either.
But, the government also needs to recognise that when it’s pulling in a surplus of around £35-40 billion a year from London in taxes, to argue that London can’t have a comparatively small portion of that for a few years to help rebuild its shattered transport network is a difficult position to support, politically or economically.
Unfortunately, it’s an argument that both sides seem determined to have, regardless of the consequences.
The Mayor, who is said to relish a fight with opponents seems to be stuck in a Westminster mindset where being seen to fight is as, if not more, important than winning the argument.
The government seems determined to show to the “red wall” that London will be punished, and hope no one notices that fight will eventually mean less money for its eminently supportable levelling up agenda.
London is being held hostage between two warring parties more interested in winning the political fight than in doing what’s right for London, and the UK.
Londoners deserve better than that.