TfL has outlined how much support it will need from the government if it is to keep running services after the current bailout expired in October.
Before the lockdown, the London Underground was on target to make an operating surplus of over £1 billion a year, while the rest of the network broke even. Although buses run at a significant subsidy, they do carry nearly double the number of passengers that the tube carries.
Although services have nearly returned to normal, passenger numbers are still massively down on usual and even lower than had been expected once the lockdown lifted. This is leaving TfL with the double hit of less income, but also thanks to the pandemic, increased costs of around £85 million so far.
At the peak of the pandemic, TfL was losing £80 million a week, although that has improved as the lockdown eased.
However, income is expected to be worse than originally budgeted for in the second half of this financial year, by some £800 million, due to a combination of lower revenues, reduced business rates and higher costs from street changes to improve social distancing and cycling.
There are also some higher costs in H2 due to delays in maintenance work during the height of the lockdown that now needs to be carried out.
Some of the ongoing projects that will continue include the Northern line extension and Bank tube station upgrades on the tube, and the Barking Riverside extension of the London Overground.
Some of the schemes which are now dependent on additional funding, include some of the step-free access upgrades, a new entrance at Stratford station, Piccadilly line resignalling and replacing the Bakerloo line trains.
The South Kensington station upgrade has also been paused, as the construction company tenders exceeded the budget allowed for them.
The bailout agreed earlier this year saw TfL granted £1.9 billion in May 2020, in the form of a £1.1 billion initial, £500 million loan package and a further £300 million contingency. TfL now expects to use £1.5 billion of the £1.6 billion available until October 2020 and does not need to use the £300 million contingency fund.
In normal times, TfL keeps a minimum of two months operating costs as cash which equates to £1.2 billion, which cannot be touched. Above this, TfL targets holding another £600m buffer for known risks, which can be spent if necessary.
The emergency budget originally expected to need £3.2 billion in funding for the full financial year, but their revised budget is now seeking £3.5 billion for the full year – an additional £2 billion to keep the services running from the middle of October to the end of March next year. The increase is largely due to higher costs and some deferred maintenance works.
The big unknown is when things will return to relative levels of normality, with a relaxing of social distancing expected by November, and if that encourages an increase in travel, but also if there will be a second lockdown this winter.
Looking ahead to next financial year (2021/22), TfL expects that even if passenger numbers return to 80% of pre-covid numbers, they will still need an additional £2.9 billion to keep services operating due to declines in other commercial income and business rates.
That assumes no more borrowing is allowed – as TfL is already pretty much maxed out there, and that they dip into their reserves while maintaining the £1.2 billion cash float untouched.
All this excludes Crossrail.
The current bailout was only enough to keep TfL running until 17th October 2020, so they expect to start discussions with the government about a further bailout in September — that’s ahead of the expected dual reviews into TfL’s finances.
There may also be further bailouts needed, as the uncertainty about how society recovers from the pandemic is leaving some very large variances in the financial projections.
Also, long term projects deemed to be at risk unless funding can be found include the Bakerloo line extension, the DLR to Thamesmead, the West London Overground line, and Crossrail 2.