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Road charges and driverless Tubes may restore TfL coffers

Funding

24 July 2020
 

Road user charges and driverless Tube trains are among the policies the Government is considering to restore Transport for London to financial health. 

The Government announced a review of TfL’s finances in May, alongside news of the £1.6bn Covid-19 emergency aid package  to keep transport services in London running until September (LTT?29 May). More details were released by the DfT this week. 

The review is led by the DfT, which has appointed consultant KPMG to assist. Three ‘levels’ of analysis will be conducted:

Level one: evidence and understanding of TfL’s current financial position, including a review of current obligations and functions, current income streams, and commentary on how these have been impacted by Covid-19.

Level two: evidence and options to strengthen TfL’s financial position over the remainder of 2020/21 and 2021/22. This will include: options for short-term revenue maximisation; raising more non-fare based revenue; and  further efficiencies. TfL’s approach to prioritising capital spending will also be explored.

Level three: options for more fundamental changes that could put TfL in a fully sustainable financial position by the end of the current business plan period (2024/25). This will include: 

  • options for maximising revenue and more non-fare based income; revenue yield choices over time; and changes to road user charging schemes as foreshadowed in the mayor’s transport strategy 
  • further efficiencies on operating costs, including extending driverless operation from the Docklands Light Railway to Tube lines that are already automatic
  • reviewing the approach to prioritising capital spending
  • reviewing the current operating model 
  • reviewing the balance sheet and financing structure of TfL

Conclusions will be reached by the end of August. The review will report to transport secretary Grant Shapps, with oversight from the Prime Minister and the Chancellor of the Exchequer.

Findings will inform the negotiation between the Government and TfL over a fresh round of Covid-19 emergency support.

Jo Hawkes, TfL’s director of corporate finance, says in a paper to its board next week that TfL will need extra support for years. “The need to provide a full transport service to support London while continuing with on-going public health and safety restrictions (such as social distancing), and the possibility that Covid-19 may change transport use permanently, means that TfL will require further financial support for several years to come.”

TfL launches its own financial review

Transport for London has appointed an expert panel to lead its own financial review that will run in parallel with the Government’s (see main story). 

TfL says its current model of funding is “unsustainable”. “TfL has one of the highest proportions of fare income cost recovery in the world, at 80 per cent of the day- to-day cost of operating the network, compared to 38 per cent in New York,” says Jo Hawkes, TfL’s director of corporate finance,?in a paper to next week’s board meeting.?

Prior to Covid-19, TfL had reduced the funding deficit for operations, maintenance, renewal and financing costs from £1.5bn in 2015/16 to £200m. Covid-19 is forecast to cost TfL £4bn this year alone.

The organisation, set up in 2000, now has debts of about  £12bn, and “even before Covid-19 was close to its upper financing limits”. 

Says Hawkes: “The user pays/cross-subsidy model is clearly unsustainable and not resilient. TfL requires a new funding model to provide both: long-term certainty to enable services; and efficient whole life asset stewardship.”

The expert panel to lead the review comprises: 

  • TC Chew – leader of Arup’s global rail business
  • Stephen Glaister – emeritus professor of transport and infrastructure at Imperial College London and a former TfL board member 
  • Bridget Rosewell – chair of Atom Bank and the M6 Toll company, a National Infrastructure Commission commissioner, founder of Volterra Partners, and chief economic advisor to the Greater London Authority from 2002 to 2012
  • Sir Jonathan Taylor – vice president of the European Investment Bank from 2013 to 2019 and previously director general of financial services and stability at HM Treasury.

Consultants Evercore and Nera will provide advice.

Initial conclusions should be provided next month, which TfL hopes will influence the DfT-led review.  

 
 
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