On 9 December 2021, the House of Lords is due to debate the following question for short debate:

Lord Davies of Brixton (Labour) to ask Her Majesty’s Government when they will announce the details of any further Extraordinary Funding and Financing Agreement for Transport for London for the period after 11 December.

How is Transport for London funded?

In 2019/20, the latest year for which figures are available, Transport for London’s (TfL) income and funding came from four main sources. They were:

  • fares income, which is TfL’s largest source of income (£4.9 billion);
  • other income, including from commercial activity and income from the Congestion Charge (£1.2 billion);
  • grants, including business rates (£3.4 billion); and
  • borrowing and cash reserves (£0.9 billion).

TfL is a public body which can reinvest its income into the transport network. TfL suggests that for every pound it receives around 79% is spent on the everyday running costs of the network and 21% is spent on future improvements.

TfL has seen changes to its funding model in recent years. In the 2015 spending review, the then Conservative Government, under former Prime Minister David Cameron, announced that it would be phasing out TfL’s annual operating grant from April 2018. Instead, the Government stated that it would support over £11 billion investments in London’s transport. It also said that the grant reduction would save £700 million in 2019/20 which could be “achieved through further efficiency savings by TfL, or through generating additional income from the 5,700 acres of land TfL owns in London”.

Impact of Covid-19 on TfL

Since the Covid-19 pandemic, passenger numbers on the London Underground have fallen. For example, TfL reported that 112.2 million journeys were made on the London Underground between 15 September and 12 October 2019, compared to 39.5 million journeys made on the network over a similar period between 20 September and 17 October 2020. Although there has been an increase in the number of journeys over a similar period in 2021 (19 September to 16 October 2021) with 69.7 million, figures remain lower than 2019 levels.

In May 2020, TfL published an emergency budget in response to the pandemic. The budget anticipated that TfL would need up to £3.2 billion for the 2020/21 financial year, based on early estimates from April 2020 of the impact of the pandemic on TfL’s revenues. In July 2020, TfL published a revised budget stating that it anticipated needing £3.5 billion based on assumptions it had made of a revenue shortfall due to the impact of Covid-19.

Short-term government funding to TfL

To date, the Government and the Mayor of London, Sadiq Khan (in his capacity as chair of TfL), have agreed three extraordinary funding and financing agreements for TfL. The Government estimates that the cumulative cost of this assistance is more than £4 billion.

Agreement 1: May to October 2020

On 14 May 2020, the Secretary of State for Transport, Grant Shapps, wrote to Sadiq Khan setting out an extraordinary funding and financing agreement for TfL for the period to October 2020. It was subsequently agreed by TfL on 15 May 2020. As part of the agreement TfL received £1.6 billion from the Government to support its “essential” transport services in London and allow it to “contribute fully” to the Government’s economic restart programme. The agreement was based on the assumption that the funding shortfall, “given the uncertainties in predicting [passenger] demand”, for the period 1 April 2020 to 17 October 2020 would be £1.6 billion.

Agreement 2: October 2020 to March 2021

Following further requests for support from TfL, Grant Shapps wrote to Sadiq Khan on 31 October 2020, detailing a second funding package for TfL for the period to March 2021. It was subsequently agreed on 1 November 2020. The agreement comprised of a further £1 billion for TfL to support its transport services in London.

Additionally, the agreement set out the following short and long-term objectives for the Government and TfL:

  • Short-term (up to 31 March 2021): to provide sufficient financial measures to mitigate loss of passenger revenue because of the Covid-19 pandemic and Government-led measures such as social distancing.
  • Long-term: to continue working with TfL towards a plan to reach a financially sustainable position as soon as possible, with a target date of April 2023.

As part of the agreement, TfL or the mayor (as appropriate) would have to commit to delivering: £413 million cumulative efficiency savings by the end of the 2020/21 financial year; and an additional £160 million of savings or income compared to the revised budget through a mixture of financial control measures.

In the agreement, the Government also noted that, during the second funding period, it wanted to work with TfL on the body’s long-term plans with an “aim to be in a position where a longer-term settlement is possible from March 2021 when this funding package expires”. The Government stated that at this point it would consider reducing Government supervision, for instance, by ending the presence of Government special representatives on TfL’s board—which was a condition of the first funding agreement.

On 22 March 2021, TfL announced that the agreement had been extended until 18 May 2021.

Agreement 3: May to December 2021

On 29 May 2021, the Government set out a third funding and financial package for TfL. The agreement was worth approximately £1.08 billion in addition to the funding already provided in the first two settlements. Announcing the agreement, Grant Shapps stated that it built on commitments from the previous support packages and set out further measures to be taken to “ensure TfL is financially sustainable by April 2023”. This included delivery of further operating efficiencies of at least £300 million in 2020/21 through “appropriate revenue sources” and/or “saving initiatives”.

As part of the agreement, the Mayor also agreed to work collaboratively with the Department for Transport on a joint programme for implementing higher levels of automatic train operation on the London Underground. In addition, the agreement noted that, although TfL and the London boroughs were responsible for local road maintenance (such as bridge repairs), given the “extraordinary circumstances of the pandemic”, the Government, TfL and the London Borough of Hammersmith and Fulham would draw up a memorandum of understanding to reopen Hammersmith Bridge. As such, the bridge would initially be open to pedestrians, cyclists and river traffic and, depending on cost, to motorists. Funding for this would be subject to the following conditions being met:

  • all parties must scrutinise the cost of the project;
  • each party agrees to pay a share of the cost; and
  • that the board responsible for the continued safe operation of the bridge, reporting to London Borough of Hammersmith and Fulham, will conduct a new assessment for controlled and limited reopening of Hammersmith Bridge “once further investigations and report validations are completed at the end of June”.

The bridge reopened to pedestrians, cyclists and river traffic on 17 July 2021.

The funding period for the third agreement is expected to end on 11 December 2021. To date, no new funding agreement has been made between the Government and the Mayor of London.

Is the funding enough?

Several stakeholders have been critical of the funding agreements, instead calling for a longer-term financial settlement for TfL. Following the third funding agreement, Sadiq Khan stated that the “short-term settlement” was “yet another sticking plaster” for TfL. Consequently, he said that he would work with the Government to agree a longer-term funding deal for TfL that was “both fair and right for Londoners and the whole country”. He also attributed TfL’s financial issues to less demand for its services during the pandemic, arguing that it “only needs emergency funding from the Government because its income from fares dropped by up to 90% because Londoners followed the rules by staying at home and avoiding public transport during the lockdown”.

Similarly, in an article in the Financial Times, the transport commissioner for London, Andrew Byford, stated that TfL would need more “predictable” income streams. Whilst saying he was grateful for the additional funding provided by the Government, he argued that it was “hard to run” the public body “when you don’t know how much money you’ll get on a six-month horizon […] It’s inherently inefficient”. In addition, he stated that once funding runs out on 11 December 2021 TfL would need an additional £500 million to cover day-to-day spending for the last quarter of the financial year ending in March 2022. Mr Byford said this would need to be followed by additional funding of £1.2 billion for 2022/23.

In response, Grant Shapps has highlighted that the Government has “already given the mayor over £4 billion to keep the network running”. He also previously argued that the funding settlements “must be fair” to taxpayers across the UK and on the condition that “action is taken to put TfL on the path to long-term financial sustainability”.

What could the impact of no agreement be on London’s transport network?

With no new funding agreement in place beyond 11 December 2021, Sadiq Khan has warned that a £1.9 billion shortfall could result in a “managed decline” of TfL. In an article on the Mayor of London’s website on 30 November 2021, Mr Khan stated that if an agreement could not be found, the following could happen:

Bus services would have to be reduced by almost a fifth, and Tube [London Underground] services would need to be cut by nearly 10%. In practice, this could mean more than 100 bus routes being withdrawn and less frequent Tube timetables on a number of lines and branches. TfL is even having to look at potentially closing a whole Tube line to achieve the savings it may need to make. And that’s not all. There would also be an increase in road and tunnel closures due to a lack of money to maintain London’s key transport infrastructure.

He argued that the combination of “deteriorating public transport services” and an “increase in road and tunnel closures” risked causing “widespread disruption and gridlock” across London.

In an article in the Evening Standard in the same month, Paul Downham, the fleet manager for London Underground, also warned that funding was needed to “replace the [London Underground’s] assets in a timely fashion”. He stated that without investment, the risk would “grow and grow”, which “ultimately means we’re going to have to take trains out of service for a lengthy period of time, which is going to affect the service for TfL customers”. The article detailed that the standard lifespan of railway vehicles was 40 years but trains on the Bakerloo Line were already 50 years old, whilst trains on the Jubilee Line were approaching the halfway point of their lifespan.

Similarly, Andy Byford expressed his worry for the city’s transport network. In an interview in the Guardian, he warned that unless investment is agreed with the Government, London is “staring into the abyss”. Expanding on this point, he stated that:

The negative route, the danger we face, is a managed decline. A sustained bleak future for London’s transport system, in which you can look forward to roads full of potholes, much wider gaps in train and bus services, and a complete grinding to a halt of the clean-air agenda […] a complete regression to the bad old days.

How has the Government responded?

In November 2021, the Government was asked in a written question what plans it had to provide further funding to TfL. In response, the parliamentary under-secretary at the Department for Transport, Trudy Harrison, reiterated that the Government had provided TfL with more than £4 billion in emergency funding support since the start of the pandemic. She noted this was in addition to an annual settlement agreed at the 2021 spending review worth approximately £1 billion per year up to 2024/25.

Regarding the possibility of further funding, Ms Harrison said that the Government would continue to discuss any funding requirements with TfL, but it would “not be appropriate to comment on future funding arrangements at this time”.

In the same month, Grant Shapps accused Sadiq Khan of “public lobbying” after the Mayor of London announced that TFL may need to scale back its services if it did not receive further funding. In an interview with LBC Radio, Mr Shapps stated that “people can see we’ve [the Government] stepped up to the plate and been able to keep TfL running”. He also called on Sadiq Khan to “actually be collecting fares properly, being efficient with the way that he runs the system as well”, arguing that “there’s a lot to be done there”.

Cover image Will H McMahan on Unsplash.