Commuters from outside London may need to pay more for their fares to fund London transport upgrades, a report into how to pay for the capital’s upgrades has suggested.
The report is timely as TfL faced a funding crisis, not of its making, but was already warning that the cost of maintaining the network for a growing population was higher than the revenues it earns from fares and taxes.
We live in strange times at the moment, and there has been a lot of armchair chatter about whether London even needs new office blocks and transport upgrades due to the change in working patterns caused by the lockdown.
While it’s to be expected that over the next few months to a year, that transport and central office usage will be lower than normal, these are going to return to pre-lockdown rates. This will happen even when more people work from home in the long term, as population and economic growth will more than compensate for that.
Maintenance will still be needed, which costs money, and as things wear out, better replacements which are longer lasting or cheaper to maintain become available.
The issue is how to fund this long term investment.
The report (pdf) notes that just as with other parts of the country, London should receive a reasonable baseline level of funding from central government, but it should also be prepared to raise supplemental revenues locally; but in return, must have the powers from central government to do that.
Central government funding for London is always a political topic, and even though London pays more into central government in taxes than it receives back in spending, there will always be complaints from the rest of the UK that the government spends more in London than it does elsewhere.
Allowing London to raise more money locally won’t stop the complaints — as I can attest on that forum for polite debate, Twitter. Whenever a locally funded transport project is announced, there will a flurry of well thought out responses debating the merits of how central government is spending money in London to the detriment of the regions — even when the funding is entirely locally raised.
However, a principle that taxes can be raised locally to fund local transport is one which could be used in London, and also across the UK to support regional transport upgrades.
As London First’s report states: “if London does not have access to newly devolved flows of existing taxes, coupled with some revenue-raising powers, the capital’s transport system will either be unable to cope”
In recent years, local funding for London’s transport upgrades has predominantly come from businesses, but new projects, such as Crossrail 2, are more likely to boost residential property values, which it’s harder to tap into the gains the property owners benefit from – unless a new Land Value Capture style tax were introduced to tax capital gains in property prices when sold.
A previous report looked at how Crossrail 2 should deliberately seek to create large plots of land as part of the construction phase to ensure more of the subsequent development profits flow back into the transport network.
The contentious issue raised in the report is that a lot of transport upgrades funded by Londoners are used by people who don’t live in London but commute in from the home counties.
London First suggests that it may be possible to allow London to take a greater share of the fares paid by commuters, either by a review of the split between national railway companies and TfL, or applying a top-up premium on the fares for commuters coming into London.
Economically that needs to be balanced with setting the higher rate at a level that doesn’t drive people to driving instead, but also politically it’s a hard sell to raise fares in the shires when they are already high.
Of course, if TfL were to take over more of the main line rail services, then it gets to capture a lot more of the commuter fare revenues at source.
When TfL took over Silverlink and created the London Overground, it faced a huge upgrade bill to bring the service up to standard, which today would be harder to afford. However, the national commuter trains are all fairly new and the investment needed by TfL to take over a line would be far less today than had it happened a decade ago.
Investment would be needed though, otherwise people outside London would rightly feel aggrieved that nothing changed when TfL takes over a railway line, and living outside the city means they have no say in how the Mayor of London spends their money.
The report concludes that the forthcoming English Devolution Bill provides a good mechanism to create the appropriate new powers for London to raise more funding locally, but warns that such powers need to be tempered to prevent aggressive tax-raising that then kills the developments needed to fund the transport investments.
Property is a long term investment, by the developer as well as the homeowner or office renter — and taxing long term projects over a long term offers the potential for relatively stable long term revenues, which is exactly what long term transport planning requires.
The report is based partially on a workshop held by London First in partnership with KPMG in January 2020, which predates the pandemic lockdown.