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Transport for London (TfL) has confirmed that it is reviewing its business plan after the government left it with a £250 million hole in the annual maintenance budget.
Photo by inspira studio on Unsplash
TfL has an estimated renewals and maintenance budget for the year ahead of around £2 billion, of which it had £1.5 billion from its own resources — that is fares and other income. Although TfL is on course to reach operational financial sustainability by the end of this financial year, that left an expected £500 million gap in this year’s £2 billion maintenance budget.
At the end of August 2022, TfL had secured an agreement with the government on funding until 31st March 2024, which required TfL to submit its capital funding plans to the government for approval, and it was hoped that the government would cover that gap this year.
However, it’s been announced that the government will cover just half the gap, leaving TfL with a £250 million hole in its finances, on top of October’s announcement that the government wouldn’t uprate its existing support in line with inflation – leaving TfL with an unexpected £181 million hit to its costs.
TfL has already had to delay some £90 million worth of maintenance on the network to help cover the funding gap and has confirmed that it’s now reviewing its draft business plan for the year ahead to try and cover the larger than expected gap in its finances.
As TfL is also legally required to run a balanced budget, if it can’t find cost savings through other means, it would be required to cut services to reduce costs to the level necessary to balance its costs.
TfL could try to fill the maintenance gap through borrowing, but had already assumed an extra £250 million in borrowing, if affordable. Doubling that would be a challenge. There’s also an option for the Mayor to cover the gap through a £500 million borrowing option available to the Greater London Authority (GLA). However, that’s borrowing that then needs to be repaid by TfL at a later date — so it’s not really filling a gap and more a case of kicking the can down the street for someone else to clean up.
Since 2016, and before the pandemic, TfL has saved £1.1 billion from its annual operating costs, and it is currently working on delivering £730m in savings commitments.
One of the issues often highlighted by TfL is that many of its plans have long timelines, it usually takes years to deliver rail upgrades, and TfL has highlighted the need for long term stability in how it is funded. Without long term clarity, they’ve argued that it’s harder and often more expensive to rely on short-term fixes to London’s transport.
The next 5 years of TfL’s 15-year Capital Strategy had conservatively assumed that government funding will be limited to a proportion of replacing worn out trains and signalling, but the government was clear in its August 2022 funding document that “TfL is not expected to solely finance these from operating incomes, as is consistent with other transport authorities.”
TfL is on course to reach operational financial sustainability by 2023/24. This will mean that capital renewals are funded by operating income, but that the replacement of life-expired rolling stock and signalling would normally be funded by the central government.
However, the one constant that has been reiterated time and time again is the need for long term certainty in what level of funding will be available.
The capricious treatment of TfL over the past few years, which is markedly at odds with how transport bodies outside London were treated during the pandemic makes the sort of long term planning all transport bodies require exceptionally difficult.
It’s storing up problems that Londoners will be dealing with for decades to come.
Andy Lord, London’s Transport Commissioner, said: “Through a huge effort to reduce costs and rebuild our ridership and revenue following the pandemic, TfL is now on track to be financially sustainable in terms of its day-to-day operations. We are also able to cover the cost of the majority of our capital investment.
“We, alongside London’s business stakeholders and others, have consistently made the case that additional Government support for capital investment in transport is needed if we are to be able to continue to deliver vital improvements to London’s transport network, unlock new homes and support growth across London and the UK.
“It is good news that we have now reached an agreement with the Government on the capital support that they will provide over the next year, and we are grateful for the support. However, we will now need to reassess our recent draft business plan and address the impact of the continuing shortfall in funding. That work is underway so that we can confirm as soon as possible what we will deliver for London.”
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