Transport for London expects the further delay to the opening of the tunnelled section of the Elizabeth Line – not now expected until sometime in 2021 – to deprive it of £500m to £750m of revenue over the next four years, in addition to the £600m impact built into the business plan of December 2018.
Presenting TfL’s new business plan for the years 2020/21-2024/25, Simon Kilonback, TfL’s chief finance officer, told the finance committee that this further revenue loss would be managed through “further savings, by encouraging more people to use public transport, business rates repurposing, and cash reserves we have been building for this purpose”. He said TfL was also continuing to work with the DfT and the Greater London Authority to explore how Crossrail Ltd’s recently announced need for an extra £400m-£650m of capital funding for the project can be met.
“Despite the further delay to the opening of the Elizabeth Line, a subdued economy, and an average £700m a year reduction in Government funding, TfL remains on track to generate an operating surplus by 2022/23, meaning that it will cover the cost of financing, maintaining, operating and renewing its transport network,” Kilonback reported. TfL’s deficit, measured on a like-for-like basis, has fallen from £1.479bn in 2015/16 to £422m in 2018/19, and a forecast £307m in 2019/20.
“By firmly gripping our costs, both internally and through our supply chain, we have successfully reduced the annual net cost of operations by more than £1bn (excluding the grant previously received from government),” he said.
Operating costs, on a like-for-like basis, adjusting for new services, restructuring and other one-off costs, have fallen every year from 2015/16 to 2018/19. They are forecast to be £5.61bn in 2019/20 against £5.82bn in 2015/16.
TfL’s expects its total funding to be £9.9bn in 2019/20, of which £5bn comes from passengers; £2.2bn from grant (of which £1.85bn is business rates); £1bn from the Crossrail grant; £0.5bn from borrowing; £0.2bn from property and asset receipts; and £1bn other sources.
Funding is forecast to rise to £10.8bn in 2024/25, of which £6.9bn will be passenger income; £2.1bn grant; £0.1bn property and asset receipts; and £1.8bn other sources.
The big rise in passenger income is based on the assumption that fares will rise by around the retail price index plus one per cent from next January, ending the fares freeze imposed by mayor Sadiq Khan. This, however, ultimately depends on the policies of whoever is elected mayor in May.
Says TfL: “In the next five years we expect the overall number of passenger journeys in London to increase by eight per cent, from 4.046 billion in 2019/20 to 4.372 billion in 2024/25. This is driven by the phased opening of the Elizabeth Line, which will increase rail capacity in central London by ten per cent once fully open, as well as general population and economic growth.
“We expect some passengers to move to the Elizabeth Line from other modes, particularly the Underground and Docklands Light Railway. These modes should recover this loss and benefit in later years as the huge uplift in connectivity that the Elizabeth Line brings will create new demand across the network.”
Operating costs account for £6.4bn of the £9.9bn expenditure in 2019/20, with new capital investment of £1.2bn, Crossrail expenditure of £1.1bn, capital renewals of £500m, financing costs of £400m, and use of reserves of £300m.
The business plan envisages that, of the £10.8bn costs in 2024/25, £7.7bn will be operating costs, £1.3bn capital investment, £800m capital renewals, £600m financing costs, and £500m cash reserves.
The London Underground is a big cash generator, with the direct operating surplus forecast to grow from £973m in 2019/20 to £1.519bn in 2024/25. “With this, we can cover our indirect costs, such as the customer contact centre, human resources, finance, legal and financing costs of borrowing for our capital programme,” TfL explains. “Our long-term aim is to cover our cost of renewals and like-for-like replacement of existing trains and signals.”
Passenger journeys are forecast to be 1.414 billion in 2019/20, rising to 1.433 billion (2020/21), 1.434 billion (2021/22), 1.437 billion (2022/23), 1.443 billion (2023/24), and 1.461 billion (2024/25).
Operated kilometres are forecast to rise from 84.2 million in 2019/20 to 88.5 million in 2024/25.
MTR Crossrail, the concession holder for the Elizabeth Line, commenced operations between Liverpool Street and Shenfield in 2015 and services between Paddington and Reading commenced last month. TfL projects that Elizabeth Line patronage will be 60 million in 2019/20, rising to 80 million (2020/21); 101 million (2021/22); 163 million (2022/23); 246 million (2023/24); and 277 million (2024/25).
Elizabeth Line passenger income is projected to rise from £101m in 2018/19 to £123m in 2019/20, and then £173m (2020/21); £240m (2021/22); £489m (2022/23); £884m (2023/24); and £1.037bn (2024/25).
The net cost of operations on the Elizabeth Line (taking into account financing costs) was -£211m in 2018/19 and is forecast to be -£323m in 2019/20. Thereafter the figures are: -£363m (2020/21); -£341m (2021/22); -£128m (2022/23); and then positives of +£249m in 2023/24 and +£353m in 2024/25.
Buses and streets require ongoing subsidy. “Our surface operations are subsidised by the £854m of business rates, which are notionally allocated to the operating account,” says TfL. “We therefore aim to bring the net cost of operations within this funding envelope. Ongoing operating cost inflation and reduced passenger volumes makes this a challenging target, which will not be achieved during this plan.”
The net cost of operations was a deficit of £1.107bn in 2018/19. This is forecast to fall to £998m this year, but rise again to £1.117bn in 2020/21, and £1.138bn in 2024/25. The figures include financing costs and capital renewals.
On buses, TfL has cut the size of the inner London bus network and is committed to growing the service in outer London where service volume is expected to grow by five million kilometres over the period of the plan. TfL says that, overall, it does not plan to make significant changes to the size of the bus network during the plan period “but will continue to drive down costs through our retendering programme”.
Bus passenger journeys fell 1.2 per cent in 2018/19 and are forecast to fall 0.7 per cent in 2019/20 to 2.207 billion. The business plan projections are fairly flat: 2.197 billion (2020/21); 2.194 billion (2021/22); 2.183 billion (2022/23); 2.184 billion (2023/24); and 2.198 billion (2024/25).
“In the short to medium term, bus demand is forecast to fall by 0.5 per cent each year as economic activity and population growth are more uncertain than in previous years,” says TfL. “However, with plans to stabilise bus speeds, we are confident we can return bus patronage to growth in the long-term and are forecasting increasing demand at the end of this business plan.”
TfL’s street operations continue to operate at a substantial deficit. “This is because we receive no share of road taxation and the roads themselves generate little revenue, currently limited mainly to the congestion charge, the ultra-low emission zone and advertising. In the long-term we must identify adequate funding for London’s roads, which does not force us to prioritise between serving public transport users and maintaining the strategic road network.”
Spending on non-safety-critical road maintenance has been cut in the last two years “to avoid further cross- subsidy from public transport services”.
The renewal programme will recommence in 2020/21. “In 2020, we plan to resurface more than 30km of road, replace up to 1,500 streetlights with energy-efficient LEDs, modernise around 20 traffic signal sites and replace the expansion joints and waterproofing on Vauxhall Bridge. We are also starting a multi-year programme of renewal works on the Westway (A40) and developing plans to refurbish Rotherhithe Tunnel.”
Road capital renewal spending is projected to rise from £64m in 2018/19 to £75m in 2019/20 and then to £123m (2020/21); £164m (2021/22); £155m (2022/23); £122m (2023/24); and £124m (2024/25).
TfL says the objective for rail operations, which includes the London Overground, the Docklands Light Railway and trams, “is to cover their critical capital spend, which includes renewals and like-for-like replacement of life-expired rolling stock, from operating surpluses after indirect financing costs”.
The business plan projects that rail operations will come close to covering their financing cost from operating surpluses by 2024/25. “However, they will not be able to contribute towards funding their own renewal cost during this plan.”
Patronage on the Docklands Light Railway is forecast to be 123 million in 2019/20, and then 125 million (2020/21); 122 million (2021/22); 125 million (2022/23); 133 million (2023/24); and 147 million (2024/25).
London Overground patronage is forecast to be 190 million in 2019/20, and then 197 million (2020/21); 208 million (2021/22); 215 million (2022/23); 224 million (2023/24); and 234 million (2024/25).
Patronage on London Trams is forecast to be 29 million in 2019/20, rising to 32 million in 2024/25.
The combined operating income for the three modes is forecast to be £467m in 2018/19, falling to £457m in 2019/20, and then rising to £464m (2020/21); £491m (2021/22); £528m (2022/23); £576m (2023/24); and £637m (2024/25).
The net cost of operations (taking into account financing costs and renewals) showed a deficit of £88m in 2018/19 and this is forecast to deteriorate to £130m in 2021/22 and then fall back to £84m in 2024/25.
TfL meanwhile wants to grow revenues from its commercial consulting and international operations to £45m by 2024/25.
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