TfL funding crunch could cost London over £12 billion over next decade

A policy of funding TfL to the level that it can just about survive under a programme of “managed decline” could cost the London economy around £12 billion over the next 10 years, according to a joint report by Transport for London and GLA Economics.

This is not direct cash in the sense of loss of fares income and the like, but wider economic costs through secondary effects of a weakened transport network leading to more congestion, delays and lost investment opportunities.

Just as the government justifies spending taxpayers money on large transport upgrades by calculating how improvements boost the economy for everyone, the same happens in reverse when you cut investment. Improved transport links means more homes being built and easier commutes to work, creating jobs and investment, and that feeds back to the government in higher taxes — and likewise, lower taxes and a weaker economy when investment is reduced.

The report is based on TfL adopting the “Managed Decline” model where they have just about enough money to run services, but not to invest in the future or fund long term maintenance projects.

Based on the Managed Decline capital scenario, the lost transport and highway user benefits could be worth £7.3bn in present value terms (2019 prices). There will also be wider economic impacts of the cuts in addition to the transport user impacts estimated to be around the £4.5 billion mark.

In total, lost economic growth of around the £12 billion mark.

Up to the financial year 2031/32, the additional funding required by TfL is estimated to be just under £6.9 billion, so the UK economy would lose around £5.2 billion.

Some of this is tangible in the sense of lower investment spending, but some of it vanishes into an area where benefits are based on time taken to make a journey. If a person spends an extra 10 minutes on a trip because they have to allow extra time for delays, that’s 20 minutes per day potentially wasted. With the average person working around 220 days a year, that’s 66 hours a year that could have been more productively used. Not that it all is, but this is a rough example of how better transport improves the economy, a few minutes a day might mean one extra email, or phone call, and that economic activity adds up to quite a substantial value each year.

An example is the recently completed Victoria Station upgrade, and for someone who needs to get to the northern side of Victoria Street who uses the new entrance, they save around 7 minutes per commute avoiding the road junctions at street level. That’s thousands of people saving over an hour a week, simply by upgrading one tube station.

(c) TfL

One aspect of the economic impact that’s potentially more worrying is that cuts to public transport, especially after the changes to working caused by the pandemic, are more likely to fall on those at the lower end of the income brackets.

While richer people with larger houses can more easily adapt to working from home, those who have no choice but to commute to service jobs, or people on lower office salaries squashed into flatshares will also want to get away from their flatmates and sit in an office, and they will be affected more seriously by a declining public transport network.

With TfL unusually dependent on fares than a central government grant for its income, if TfL is forced into raising fares to cover more of its costs, then those higher fares would fall disproportionately on those least able to afford to pay them.

Away from day to day running costs, there are also the upgrades to the London Underground to be funded. These are substantial long term investments that are traditionally funded by government grants, but there is talk that future upgrades to the tube could be cut.

If TfL is forced to make cuts due to long term capital funding cuts, then economically, it makes more sense to cut buses than to cut trains, as the London Underground makes an operational profit, while buses run at a loss. In fact, in pre-pandemic times, the tube pretty much covered the cost of the bus service.

Cuts to the London Underground due to lack of maintenance would reduce TfL’s ability to cross-subsidise the bus service, and cutting buses due to lower tube fares income would have a far greater impact on people on lower incomes who rely on cheaper buses to get to work.

That all makes London more expensive to live in — than it already is — and would likely see London as a whole return to a state of “managed decline” as typified in the 1960s-80s when London’s population shrank as people moved out to new towns and investment in the city was seen as unimportant because it was shrinking.

The downside of that model for London, is that in general, the government makes a profit out of London, taking more in taxes than it spends, to the tune of around £36 billion a year. That’s money that can then be spent outside London on levelling up, but only while London generates the surplus. A declining transport network makes London less desirable to live in, or at least, with its high costs, a good transport network makes it more tolerable. Remove the reliable transport network, and we end up back in the 1970s/80s with people shunning the trains and buses, and moving out of the city.

Andy Byford, London’s Transport Commissioner said: “There is a clear relationship between London’s economy and the efficient and reliable transport service that supports it. There can be no UK recovery from the pandemic without a London recovery, and London’s recovery will rely upon its transport system. It is essential that in the days remaining before the current agreement with Government expires, a solution is found that prevents a downward spiral for transport in the capital and allows to us get on with the job of re-energising London to the benefit of the whole country.”

A loss to the London economy over a decade of £12 billion is not much overall, but as the UK government could make a profit of £360 billion from London over the same time period, it would seem odd to imperil the London goose that’s laying the Government’s golden eggs for want of a few billion spent on the transport network.

The GLA/TfL report is here.