Transport for London has confirmed that it is expecting to see a loss of £4 billion in revenues this year due to the coronavirus lockdown around half its annual income.
An urgently called finance committee meeting was held today to discuss how TfL will handle the huge drop in its income at a time when its fixed operating costs cannot be easily reduced. The finance meeting was called with less than five clear working days’ public notice due to the urgency of the problem.
The lockdown has caused an overall income loss of around 90% including non-passenger incomes – such as its commercial rents to tenants, which was reduced or waived a couple of months ago.
It’s currently costing around £600 million a month to keep the network running, and that’s after they furloughed a quarter of the non-operational staff.
Although they expect to see a reduction in income this year of around £4 billion, the funding gap between income and costs can be reduced to £3.2 billion, and TfL says that it is in ongoing discussions around how this should be funded with the Department for Transport and HM Treasury.
The difficulty is that TfL is both nearly maxed-out on how much it can borrow for capital investment, but is also required, under local authority legislation to run a balanced budget annually.
TfL started the financial year with £2.2 billion in cash reserves to cover contingencies, which was slightly above what was recommended, but the lockdown is causing TfL to hemorrhage cash.
It’s trying to avoid breaching the £1.2 billion floor which is considered the absolute minimum for the organisation to maintain for emergencies.
Transport for London is now facing an expected shortfall of £1.9 billion, having drained its cash reserves and not expecting an imminent return to normality – hence the recent reports that TfL is seeking a £2 billion bailout from the government.
TfL also expressed concerns about how the impact on its reduced income will have on its suppliers, who may face reduced, or even cancelled orders in the months to come.
If TfL’s negotiations with the government fail, then it would have to fall back on issuing what’s known as a section 114 notice under the Local Government
Finance Act 1988, which freezes all new expenditure for up to three weeks while an emergency budget is agreed.