Transport for London (TfL) has confirmed that it is accepting the funding deal that’s been offered by the government after their urgent board meeting earlier today. The agreement between TfL and the Department for Transport (DfT) will support transport services in London for the next 19 months — that’s until 31st March 2024.

However, there’s an unfunded gap in the budget that the negotiations did not resolve.

The Mayor of London, Sadiq Khan warned that “this deal is far from ideal”, and that the funding gap will likely lead to cuts in bus services and higher fares. He also said that the conditions could increase the risk of strikes by the unions as TfL is still required to make reforms to staff pensions. He added that “The sole cause of TfL’s financial crisis was the impact of the pandemic so it’s simply wrong to punish Londoners and transport workers in this way. Levelling up the country should not be about levelling down London”

The terms of the “Long-Term Funding Settlement” contains support agreements for passenger revenue risk as well as capital and operating support. In relation to revenue risk, the Long-Term Funding Settlement recognises that since the relaxation of Covid-19 restrictions, the current circumstances continue to present ongoing financial challenges and uncertainty to TfL in predicting the future passenger revenue for the organisation, therefore the Government will retain passenger revenue risk and make grant payments if passenger revenue is lower than the pre-determined forecast.

For capital and operational support, the Government will fund the difference between TfL’s costs and revenue up to an agreed annual envelope. The overall funding amount will be £598 million for the period 30 August 2022 to 31 March 2023 and £565 million for 2023/24.

The agreement has left a gap in TfL’s budget of around £740 million over the next couple of years. TfL has been tasked with finding measures to balance the budget, and these will include holding their cash balance at £1.2 billion, assuming benefit from the inflation mechanism built into the agreement, and the release of contingency funds from their budget.

This leaves TfL with a target for further savings of around £90 million in 2022/23 and £140 million in 2023/24 beyond the £730 million per year in recurring savings programme they have already committed to. TfL says that it is now working out how to close that funding gap including additional potential sources of funding if the savings cannot be met.

Andy Byford had said earlier today that while the funding settlement is not entirely sufficient, it would be enough to plan for the immediate future. TfL is continuing to target financial sustainability from April 2023 and says that it is working towards being financially sustainable before the latest funding package expires on 31st March 2024.

Transport for London Commissioner Andy Byford said: “This agreement, which was hard won, means that we can now get on with the job of supporting London’s recovery from the pandemic – to the benefit of the whole country.”

Andy Byford added that the agreement “helps us avoid large-scale cuts to services, and means that we will commit £3.6bn to capital investment over the period, with around £200m of new capital funding from Government beyond previously budgeted sources like business rates, which were devolved to the Mayor in 2017.”

“The agreement also allows us to increase our asset renewal programme to help ensure our network remains reliable, and means we can restore our Healthy Streets programme, making our roads safer, and more attractive for those walking and cycling.”

“The support offered by Government left an unfunded gap in our budget, which we have been working hard to identify how we will fill. This work has made good progress and we are confident that we will achieve an outcome that allows us to balance our budget and maintain our minimum cash balance. We will need to progress with our plans to further modernise our organisation and make ourselves even more efficient, and we will still face a series of tough choices in the future, but London will move away from the managed decline of the transport network. We are grateful for the support of both the Mayor and the Government as we now set out to continue serving the capital and investing in safe and reliable services for the millions of people who need them.”

In a message on Twitter, the Secretary of State, Grant Shapps said that the DfT has “agreed a long-term settlement with TfL, which will support nearly £3.6bn of projects & bring total funding to over £6bn in a way that is fair to all taxpayers. The Mayor must now follow through on his promises to keep TfL on the path to financial sustainability by 2023.”

The pensions reform could be the cause of a lot of problems with staff and the unions, and while TfL’s pension is more generous than most, that’s mainly a legacy of how the GLA was created by the national government, which locked in the scheme, so it’s not easy to change it anyway.

One difficulty with how the pension is managed that’s also an opportunity is that while TfL itself is regulated as a local authority, the pension is classified as a private sector scheme, where TfL is responsible for both past and future liabilities. A government guarantee on these liabilities could reduce TfL’s contributions to the scheme and save an estimated £100 million a year without reducing payments to staff. That would require a change in the law, so the decision lies with the government, not the Mayor.

The deal requires a pension reform deal to be agreed between TfL and the Dft by February 2023, and if a consultation is needed with staff and pensioners, then that has to start by May 2023.

Commenting on the announcement, Siân Berry AM, Chair of the London Assembly Transport Committee observed that “During the pandemic, train operating companies nationally received continuous financial settlements, totalling more than £10.4 billion to 24 July 2021.  In contrast, TfL has received numerous short-term funding settlements from Government, totalling around £4 billion.”

The formal letter is rich in small print

According to the settlement letter, the funding settlement will ensure the delivery of key capital renewals and investment in London worth £3.6 billion until March 2024, for the delivery of, amongst other things, completion of a number of major projects, new road schemes and increased bus priority.

Although the government accepts that capital investment in new trains and the like is supported by central governments around the world, TfL will only get future investment if it can show “real-terms like-for-like reductions in its cost base”, and that it is able to raise an additional £500 million to £1 billion in revenues from 2023 onwards.

The funding deal assumes that fares will rise, but it will leave that decision to the Mayor of London. However, if fares don’t match the assumptions in the funding deal, then it’s for TfL to fill the gap. There is however an assumption in the document that fares will increase by 4% in March each year.

As for wages, TfL’s pay award for 2022/23 will need to follow the public sector pay policy, which is set out by the national government, so any pay rises will be effectively out of its control. More worryingly, the agreement says that the current pay awards were out of step with the national public sector pay policy, and TfL is expected to cut costs to recover the difference.

That’s setting TfL up for a fight with the unions.

A plan to sell and lease back the new Piccadilly line and DLR trains that are on order has been cancelled, and funding is assumed within the budget. That will save money in the long term, but funding for that was included in the £1.1 billion of funding agreed for 2022-24, so it’s not fresh money. However, the agreement requires TfL to push on with plans for driverless trains – right up to the highest grade (GoA4), which is fully unstaffed trains as the ultimate ambition.

Whether that can be delivered though is left open to the research to find out. And if it can be, then someone is going to need to find a lot of money to pay for it. An awful lot of money.

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22 comments
  1. May says:

    Let’s be realistic, the Government should take control of Transport for London and abolish the Mayor of London along with Greater London Authority. They still have the majority in Parliament to do that!

    Sadiq Khan does not represent me and any other people in Britain including London!

    The New Labour’s creation of the Mayor of London and Greater London Authority is a complete waste of taxpayers money since Tony Blair dragged us to the Iraq war in 2003!

    • July says:

      Sadiq Khan has the largest personal mandate of any politician in the UK – that’s simply a fact, regardless of whether you like him or not.

    • Julian says:

      So you don’t agree with devolved government, and local politicians tasked with delivering according to local priorities?

      We already have one of the most centralised systems of Governments in Europe and yet you want to make it even more remote and unaccountable.

    • July says:

      Oh come on May! Sadiq has done a great job as mayor, better than his predecessor obsessed with wasting money on vanity buses and bridges. Transport options in London have never been better or more reliable.

    • August says:

      Why does it matter if Sadiq Khan doesn’t represent the people of Britain? He is the Mayor of London, not the Mayor of Great Britain.

    • Andy T says:

      Iraq has got nothing to do with anything related to this article.

      Regardless of your views, that was a National Government action and if you want to take issues with a Prime Minister, I’d be more concerned with the outgoing one who has made a pretty good attempt at dismantling democracy and their replacement seems to be likely to want to continue in the same vein, rather than using a completely unrelated matter to bash one that’s been out of office for over 12 years.

      Would it be fair to assume you do not live in London also?

    • April says:

      May, that is a terrible idea. Look at the mess that is the wider National Rail network across the UK. Do you really want that for TfL? We have some of the cheapest fares in the UK, and that is thanks to Mr. Khan. Just because you have a backwards Tory viewpoint (I can just smell your racial prejudice through the computer screen) doesn’t mean everyone else in London does. As July has mentioned, Mr. Khan has an incredibly large political mandate.

      Also, what the flying flamingo does the Iraq War have to do with the GLA? Grow up and get your head out of your own backside. I swear, I’ve never heard a single rational pro-conservative argument in my entire life. Absolute moron

  2. June says:

    Utter Rubbish May.
    Don’t be so naive.
    This is an exceptional company with a huge mandate it runs on the collaborative goodwill of staff most of the time.
    One of the biggest employers in London.

    Unfortunately it’s also a political football that’s kicked about an awful lot.
    It swims in the lies of our “owned media outlets”

  3. Mark says:

    Sadiq Khan has done an excellent job with tfl and London through the pandemic. He has the support of a huge majority of Londoners. Let’s hope the pension issue can be sorted so that strikes are over. In addition it is worth saying that wage settlements in all industries must be around inflation or they are wage cuts which would be unfair.

  4. AJ says:

    DfT threw billions at the TOC’s with very little strings attached, yet micro manage TfL to the nth degree with a fraction of the money.

    This is disgusting party politics that looks to inflict political embarrassment on Sadiq Khan whilst punishing ordinary Londoners with (at least) 4% fare rises, cuts to services, more tired tube fleet and of course the inevitable industrial action that will proceed.

    Nothing screams more about how much this deal stinks more than DfT wishing to throw even more £000’s towards ‘driverless trains’ (LOL), whilst claiming to be committed to future capital expenditure such as the ‘Northern Line extension’ (which is already done AND partially paid for by developers). That basically confirmed the indefinite pause of big ticket items like Crossrail 2 and Bakerloo Line extension.

    The sooner TfL can get external funding sources to detach itself from DfT, the better. I’m sure some governments in the Middle East are keen to wash the money in some more London assets, who knows maybe by 2035 we could be riding the Aramco Line!

    • Brian Butterworth says:

      I thought the NLE was eventually going to go all the way to Clapham Junction?

    • Adrien says:

      @Brian Butterworth

      The route to Clapham Jct. has been safeguarded but will only be built should Crossrail 2 come

    • UCHE MICK CHINONSO says:

      The Northern Line extension. That opened 21st September 2021. Why is that still a topic? I’m well aware that even after the pandemic travel is on the rise, and so an extension to Clapham Junction isn’t a priority given the immediate overcrowding, cost of building a new station and, more or less a cheaper option but still expensive, sharing with Network Rail assets.

  5. Chris says:

    The sooner TfL stop offering expensive final salary pension schemes to new employees the better.

    Maybe this funding settlement will finally force them to have parity with every other sector!

  6. Sara says:

    Just back from Barcelona. What a great public transport system! Buses excellent, air conned (properly), clean, and courteous. All public transport users and drivers masked. And all the fares are about to be reduced
    https://www.tmb.cat/en/barcelona-fares-metro-bus/single-and-integrated/transport-fares-reduction

  7. Alan says:

    TFL simply won’t make a profit by increasing fares, reducing services and quality of service. People will simply not use it and either the roads will get too busy or people will move out of London. Can we come and live in Manchester, please, Mr Burnham?

    • Brian Butterworth says:

      The problem is that there is a lot of (tube mainly) services set up in peak time that are (now) lower usage during those times but are being used more out of peak.

      TfL could easily knock out some of the peak-busting services from their tube lines but leave the best turn-up-and-go timings in the UK.

      Once the Liz line runs though from Stratford to Liverpool Street (very soon), the Central Line is going to be quieter in Zone 1, so some small reduction in it’s services won’t be that noticeable.

      And the buses in London are awful, especially away from Bus Lanes: nocking out 10% shouldn’t be a problem for now. And having the planned Express Buses might make them more useful, especially if they linked up other transport modes.

  8. NG says:

    May
    Oh you want Boris de Piffle or Liz Truss in charge of London, wrecking the place? { even more }
    Remember that “levelling-up” is Boris-speak for “Trashing London”
    London is the CAPITAL CITY – it needs its own government, as do all other capitals.
    – see also July & Julian – thank you.

    AJ’s highly technical points are very important, too.

    For reference, look at this article: https://www.bbc.co.uk/news/uk-england-london-62728974
    And – scroll down to the subsidy, or lack of it, that capital cities get.
    London is struggling, because of tory spite & deliberate mismanagement.
    List of Cities – followed by subsidy percentage, in decreasing order …
    Singapore – 79%
    Hong Kong – 63%
    New York AND Paris – 62%
    Madrid – 53%
    London – 28%

  9. LMonroe says:

    Sounds like excellent new; well done Grant Shapps. The transport strikes so far this year have not dented any of the political will to cut the unions down to size and finally bring TfL finances into a 1990s state of mind. I expect squealing from Mick Lynch and his cronies but to no great avail.

    Khan and Byford will be forced to reform pensions – though I would have liked more conditionality, for example, limiting all future pension contributions to the statutory minimum.

    Shapps should also have forced TfL employees to work overnight, on Sundays and bank holidays with no extra pay as a standard part of an updated contract.

    • Rob says:

      I work for TfL (Underground). I work nights, Sundays and bank holidays as part of my contract and can set you straight: I don’t get a penny extra for these shifts as they’re already part of my contract, and have been for the past 21 years.

    • ChrisC says:

      Why is every post you make so anti worker?

      You want to slash their pay and pensions as well as cut other benefits but never consider the impact of that on the service these people provide let alone the impact on passengers.

      You want automation but have never said how you would fund the capital expenditure required (billions) to install it let alone address the years of disruption that would cause. And you never have an explanation that despite being Mayor for 8 yerd Boris did nothing to progress automation.

  10. Mark E says:

    I wonder why when visiting a few London based/TfL covering Forums the same “talking points” sent out from Tory HQ and their Tufton St “Friends” seem to keep appearing with distressing regularity?

    Does any normal member of the Public in London go to bed at night worrying about what TfL are going to pay their workers when they retire? No.

    But around parts like these the usual suspects post frothing at the mouth attacks on pensions and the rights of actual workers – real people that do a critical job and take people’s lives into their trust – for what purpose exactly?

    Is it jealousy that the Tube is one of the few places left where semi-decent terms and conditions survive a decade’s long assault on such?

    Or it it just a transparent attempt as many here note,to undermine the democratic choice of Londoners and attempt to force by other means what The Right now can’t do at the ballot-box. That’s not even a question.

    Of course it is.

    May (and your ridiculous, poisonous racism) and Chris – toddle off back to your Paymasters and ask for danger money. You’ve been sussed.

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