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.

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5 comments on “Transport for London agrees £1.6 billion government bailout
  1. Melvyn says:

    It should be remembered that the government removed funding of TFL leaving it one of the few transport bodies not receiving funding from central government.

    While as Mayor of London Prime Minister Boris Johnson abolished the western congestion charge zone throwing away millions that it brought in . Perhaps it’s time to reintroduce WEZ as a separate zone with residents discounts only covering their zone and with a two zone charge to use both zones !

    Expanding the ULEZ could also be brought forward !

    It’s worth remembering that the Mayor election was supposed to occur last week so Sadiq Khan has fulfilled his pledge not to increase during his term in office so any fare increases won’t break his promise !

    I noticed the government announced today £2 billion funding supposedly for rail and road but then said most of it would go on filling pot holes in roads something their cuts have created!

  2. Sykobee says:

    This could be a get out of jail free card for Sadiq, as his fares freeze did need to come to an end. It’s clear that this has now been mandated by the government in order to keep services running, unlike elsewhere in the country. The comment about WEZ and ULEZ expansion is another place that TfL can get money back, and pin it on the government.

    But the reality is that this is a bit of a takeover by central government of a local authority that they have not been providing money for. And 1.6B is going to last all of 11-12 weeks, but passenger numbers aren’t going to rise significantly in that time because of social distancing, which will likely be in place all year.

    So this song-and-dance will happen again, and again, this year.

    Bye bye Crossrail 2, Bakerloo expansion, … but maybe if working from home sticks in perpetuity for even a small percentage of customers it could reduce the need for these for a few years.

  3. Ciaran O'Meara says:

    One outcome, and I don’t know who is behind it, is that Freedom passes will not be valid in peak times. I know that it is how it was, but us disabled users use it during the rush hour to get to work. This must surely be such a small saving as to be rather petty.

  4. Liam says:

    If the Bakerloo extension were to be shelved would it become the ‘Bakerloo Depths” to balance out the “Northern Heights” that was shelved after WW2?

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