The Mayor of London, Sadiq Khan, has established a facility to ensure Transport for London’s (TfL’s) budget will balance throughout the period of the latest funding agreement with the government.
This facility will restrict the GLA’s future financial flexibility and the money will have to be withheld from later funding from the GLA to TfL. It gives TfL time for its revenue to recover and protects essential services for Londoners.
The recent government agreement has left TfL with a £230m funding gap across the current and next financial years, which the previous Secretary of State for Transport, Grant Shapps, assumed could be met through further efficiencies without saying how. But TfL assesses this as highly challenging and has to prepare for the eventuality that it may not be deliverable.
Since 2016, and before the pandemic, TfL has saved £1.1 billion from its annual operating costs, and it is currently working on the delivery of £730m in savings commitments. As part of the Mayor’s determination to ensure all agencies he is responsible for are as efficient as possible, TfL is committed to looking for further efficiencies.
However, there is no certainty that the additional £230m savings required by the agreement can be identified and delivered, without which TfL would face choosing between slashing services to save money quickly or not being able to balance its budget – a legal requirement.
That’s why – to remove uncertainty both for TfL, Londoners using our essential public transport services and the staff who operate them – the Mayor has acted to provide a finance facility of up to £500m from City Hall that TfL can call on if necessary between now and March 2024, when the government funding deal expires.
This facility – which the GLA could not introduce before as the funding gap was too large to fill and there was insufficient confidence that the money could be recovered from funds intended for TfL in the future – is designed to ensure that TfL’s budget will balance in light of the gap and the risks TfL’s Chief Finance Officer has identified to the delivery of their budget, such as the level of non-passenger income generated.
Without this new facility, it’s likely TfL would have faced taking a decision to plan significant service reductions in a matter of weeks in order to confirm it could balance its budget, as further efficiencies cannot be confirmed that quickly.
Proposals for additional investment would require additional funding as this facility is not for additional spending but only for balancing the budget, based on the requirements of the funding deal.
This means it can’t be used to reverse the bus cuts that TfL recently consulted on and which the government effectively insisted on in return for giving TfL funding. However, it does mean that TfL will move further away from ‘managed decline’ – thereby allowing it to get on with serving London and supporting the city’s recovery from the pandemic.
The Mayor and the GLA’s Chief Finance Officer wrote to TfL at the beginning of this month offering this facility, enabling the TfL board to accept the government’s funding deal. Following completion of the necessary formal processes, this ‘comfort letter’ can now be published.
The Mayor of London, Sadiq Khan, said, “The recent funding agreement for TfL came after some extremely tough and protracted negotiations. Although TfL and I were able to secure a number of key concessions, the Government still left TfL with a significant funding gap.
“City Hall’s innovative yet prudent approach to ensuring TfL can balance its books, will help TfL to adapt to the negative impacts of the pandemic without the need for significant service cuts, protecting London’s transport network for the millions of Londoners and visitors who rely on it every day. As Mayor, I will continue working flat out to ensure we maintain a world-class transport network – something that’s so crucial as we continue building a greener, fairer London for everyone.”