Transport for London (TfL) has secured £1.6 billion in emergency funding from the government, but has to make a lot of changes to its operations in exchange for the bailout.
With TfL being expected to keep its services running, but also facing a collapse in ticket fares revenue, the organisation has been forecasting a loss of £1.9 billion this year. With its borrowings nearly maxed-out, and reaching the limit of dipping into its cash float, the organisation was just a day or two away from issuing a clamp-down on all non-legally required spending.
TfL is actually expecting a far deeper decline in revenues, but has been able to dip into some of its cash reserves, although those were built up to deal with the Crossrail delays and insure against the risk of a Brexit related economic downturn.
Under the terms of the agreement, TfL is receiving an “Extraordinary Support Grant” of £1.095 billion payable under section 101 of the Greater London Authority (GLA) Act 1999 — which is basically a grant from central government to the GLA, which is then passed to TfL, and a loan of £505 million from the Public Works Loan Board.
However, given the uncertainties in predicting demand, if the actual funding shortfall for such period is greater or less than £1.6bn, then the amount of the Grant and the loan will increase or decrease proportionately, up to a maximum of £1.9bn in aggregate. The funding requirement will be kept under review throughout the period to 17 October 2020.
The bailout from the government comes with strings attached.
In the short term, there are agreements to increase the service frequency to normal levels and report back to the Department for Transport (DfT) on performance and staffing issues. That could trigger a problem with the unions who have been pushing for a much slower return to full services on the buses and trains.
As part of the agreement, two representatives from the DfT will also sit on board meetings at TfL, effectively ending the arms-length approach to TfL given by the government since it was founded 20 years ago.
There will also be a longer term review of TfL’s finances.
Earlier today the Transport Secretary Grant Shapps said that he was optimistic that a solution would be found, but that fares would have to rise to pay for the money.
That fares would rise by above the rate of inflation from next year had already been presumed in TfL’s own finances, but the final decision lays with the Mayor of London, whomever that is after next year’s delayed Mayoral election.
TfL fares have been frozen for the past four years, leading to an estimated decline of around £160 million a year for TfL, and a government bailout for London while fares were still frozen — and declining in real terms — would have been politically impossible to sell.
The Mayor has criticised the decision by the government to insist on £505 million of the funding to be provided as a loan, but it can be noted that the fares freeze has reduced TfL’s income by an estimated £650 million over the past four years, the implication being that the loan is only a loan because it wouldn’t have been needed at all had the fares freeze not taken place.
In addition, as part of the bailout funding, and the requirement for fare increases from January 2021, free travel will be temporarily suspended for Freedom Pass and 60-plus card holders at peak times – which is not just a financial issue, but helps reduce crowding on the transport network — and the Congestion Charge will be “reviewed”.
The bailout not only keeps London’s transport network running, but as TfL pointed out at a board meeting this week, it ensures that they can keep paying their suppliers, most of whom are outside London. That supply chain particularly in the North of England would have been a significant issue for the government to be seen to be supporting, and as a way of politically securing approval for additional funding in the Capital’s transport network.
Updated: 15th May 7:20am with more details about the funding agreement.