Extraordinary Funding and Financing Agreement for Transport for London

Baroness Vere of Norbiton Excerpts

Thursday 9th December 2021 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)]

My Lords, I declare an interest as a Londoner. Sadly, I am not a Freedom pass holder. I do not even get one of those free chitties for the over-60s, but my husband does; he is in full-time employment and yet he has free travel—go figure.

I pay tribute to the noble Lord, Lord Davies, for securing such a very timely debate on the important issue of extraordinary funding and financing for Transport for London. I think we would all agree that London has one of the best public transport systems in the world, and the Government recognise how crucial it has been throughout the pandemic and how important it is to our capital and country.

The onset of the pandemic had a devastating impact on TfL. Ridership was absolutely decimated. In spring 2020, passenger journeys reduced by 95%, almost overnight. When TfL’s income plummeted, and as the Government advised people to stay at home to curtail the spread of the virus, we necessarily stepped in to ensure the continued provision of essential transport services in London. By supporting TfL, the Government ensured that essential transport services were available to key workers, including nurses, teachers and retail staff, at all times. I am enormously grateful—I have said this many times before—to all the TfL staff for their incredible service during the pandemic, and of course I too mourn the loss of life among transport workers, both in London and beyond.

However, it is appropriate to note at this juncture that transport in London is devolved to the Mayor of London—this was noted by the noble Lord, Lord Berkeley. The mayor is responsible for service levels. He can decide which buses and tubes he runs, as well as asset maintenance and enhancements, fares and much more, as noted by my noble friend Lord Moylan. The mayor must take decisions relating to transport in good times; for example, when the mayor decided that a multi-year fares freeze was a great idea, despite it costing hundreds of millions of pounds. He must also take those decisions when times are a little more challenging, as they are now.

What should the Government do in all this? In normal times, the Government would agree a settlement with any devolved area, whether that be London, Manchester or Liverpool, and there is a package of powers and responsibilities, local fundraising routes and a contribution from central government. Many noble Lords have commented on the lack of a great handover of cash from central government, but that is not entirely the case. We are slightly missing the fact that some of London’s business rates, instead of being paid to the Government, go to the Mayor of London. That funding is essentially made by the Government, and it replaces the grant that went before.

Since the outset of the pandemic, the Government have consistently recognised the financial distress that has affected TfL as a result of the Covid-19 pandemic, and we have continually demonstrated our commitment to supporting TfL. To date, the Government have provided more than £4.1 billion to TfL in emergency funding over the last 18 months—that is a considerable amount of money in what are, quite frankly, very difficult times. The current emergency funding settlement for TfL went from June to December and is worth just over £1 billion. If you add that to the two previous bailouts, in May 2020 and October 2020, that takes you up to the £4.1 billion figure.

This emergency funding is separate from other funding that TfL gets. It gets £1 billion a year towards capital investment. Noble Lords were decrying the lack of long-term certainty of funding, but that £1 billion a year was announced at the spending review and will continue up to 2024-25. That is, in fact, the same amount of funding that TfL got the previous year. I should say again that the pressures on the nation’s finances are very significant.

It is worth noting, although I cannot go into the detail that my noble friend Lord Moylan did, that even before the pandemic TfL was in a precarious financial position, with a funding shortfall of approximately £2 billion—perhaps indicating that those fares freezes were not wise. Events since March 2020 have exacerbated and highlighted TfL’s financial difficulties, so the extraordinary financial support that the Government have provided must be considered—and in the Government’s mind is always being considered—in the light of the longer challenge of how we ensure that London’s transport system is funded for the longer term. Here I slightly disagree with the noble Lord, Lord Adonis, who seemed to say that we just have to get through the pandemic and then we will sort it out. There is a good opportunity to provide a framework for sorting it out now, and that is exactly what these funding deals do.

TfL’s own independent review—again, noted by the noble Lord, Lord Adonis—published in December 2020, recognised that TfL has a continuing funding shortfall. It considered a range of options to close the funding gap, including increasing fares and removing concessions; all of these are matters for the Mayor of London. TfL’s own financial sustainability plan, published shortly afterwards, in early January this year, set out, to some extent, TfL’s ambition to become financially sustainable. But TfL’s plan lacked a clear and decisive road map, which would have required difficult decisions at TfL and in City Hall, to achieve that longer-term financial sustainability.

In supporting TfL, the Government have been very focused on how to provide a framework in which TfL can become financially sustainable. By that we mean that TfL should be able to cover, without government support, its operating expenditure, capital renewals and enhancements, servicing and the repayment of debt. We certainly would not expect it to cover major capital infrastructure, such as Crossrail or potentially Piccadilly line signalling and those sorts of things, but we would expect it to cover the day-to-day capital expenditure. We are very clear that endless short-term bailouts from government is not a sustainable situation. TfL needs to be financially sustainable, ideally by spring 2023. It is now up to the Mayor of London to set out in detail how TfL should get there.

I absolutely pay tribute to the noble Lord, Lord Adonis —I thought he had some cracking tips in his speech on how the mayor might get there. Perhaps he might get himself a new job in the mayor’s office.

Part of this framework, and the way that we have been dealing with and encouraging TfL to become financially sustainable, is all about the conditions and scrutiny that we are able to put on, because of course we have to protect public money. This is national taxpayers’ money from the national taxpayer.

[Lord Adonis (Lab)]

My Lords, if the noble Baroness says that a long-term settlement should be put in place now, can she tell the House—because it is an absolutely crucial issue—her estimate of what traffic levels after the pandemic will be, relative to traffic levels before it?

[Baroness Vere of Norbiton (Con)]

I will not go into that sort of detail.

[Lord Adonis (Lab)]

But that is such a critical issue—it is fundamental.

[Baroness Vere of Norbiton (Con)]

I will come on to longer-term funding, if the noble Lord will give me time—although I might now run out of time. I will skip on a weeny bit.

We have required the mayor to make much-needed efficiencies and savings in the TfL cost base. It is funny, when you turn the spotlight on, how much money you can find in there: £720 million in ongoing savings. That is quite a lot of money—I am not sure we would have found that had we not gone through the pandemic. Obviously, work continues. We are reviewing the TfL capital programme to draw out the efficiencies and we have asked the mayor to look at new income sources to raise between £0.5 billion and £1 billion and to report regularly on the financial position.

The noble Lord, Lord Adonis, will know, if he looks back through the deal letters, that it is the case that the Government have committed to a review of the future funding of TfL, and that work is ongoing. We will not suddenly have a long-term deal for the next five years from Saturday. I think all noble Lords recognise that, in the midst of a pandemic, that would not be wise. We have also required TfL to initiate other necessary reforms, such as to the TfL pension scheme, so that it can transform into a modern and efficient transport operator, fit for the future of London.

I turn specifically to the pensions issue. As the noble Lord, Lord Davies, said, there is always a pensions issue. TfL’s own independent panel recognised that TfL’s pension scheme was outdated and in need of reform. It is not the Government saying that but its own independent panel. So we agreed with the mayor in the funding settlement that a process would be put in place in order to modernise and reform the pensions, and we will have a report from Sir Brendan Barber by 31 March next year.

On capital, the Government are contributing capital as well as income. There has been the £1 billion of capital a year, which I have mentioned. On top of that we have had to provide further funding for Crossrail—and I am very excited that it is opening soon. There has been funding for Hammersmith Bridge. However, TfL has made an announcement via its financial committee—and this is where we start getting into the PR and spin of TfL, or the “mayor’s world”. This level of funding means that TfL now has to implement something called its “managed decline scenario” for capital investment. Let me be absolutely clear that that rather unambitious phrase comes from the Mayor of London playbook. It is not what we want or expect to see for London, and we will continue to work with TfL to fully understand the detail of the future capital programme.

On new income, noble Lords may be asking: what is holding up the current deal? The plan is. Before the pandemic, 70% of TfL’s revenue came from fares. TfL’s finances need to be more resilient, and again this was noted again by TfL’s own independent panel. Work therefore had to commence to find new income sources, some of which had been identified by the independent panel, so a fair amount of work had been done. The mayor was given a deadline of mid-November, so that we would have the plan in good time before the deal ends. He failed to deliver the requisite document. He was then given an extension until 8 December—yesterday. We finally received a submission from the mayor yesterday at 8 pm. We are urgently considering what he sent us late last night, but we are very clear that it is for the mayor to decide new income approaches.

We know that omicron may provide an additional level of uncertainty. We know that TfL had started to recover and that things were looking better for London, but we are not sure where things will go over the coming days and weeks. The Government remain on-risk for revenue under the current funding settlement and use the top-up mechanism to protect TfL from exposure to unexpected changes in passenger demand.

On the point about Nexus made by the noble Lord, Lord Shipley, all that I will say is that I met Nexus earlier this week—so everything he said, I already knew, and I have heard its pleas.

In conclusion, the Government will continue to support TfL in a way that is fair to the UK taxpayer and ensures continued services on London’s transport system. In return, the Mayor of London must step up and lead from the front by making potentially difficult decisions in difficult times. At the moment, we are seeing a PR blitz of overexaggerated claims of doom, which he blames on others. We as central government have not been able to swerve difficult decisions, and neither should he. We look forward to working with the mayor in the coming hours, days, weeks and months to ensure that the capital has the modern, efficient and sustainable transport system that it needs and deserves.

[Lord Davies of Brixton (Lab)]

I am afraid that my actual Question in the way I phrased it in my introduction was not answered. Effectively, reading between the lines, the Minister is saying that it is totally the mayor’s fault and the Government are not prepared to do anything to avoid this situation arising in future.

[Baroness Vere of Norbiton (Con)]

I am over time, but I will respond. I am saying that there is definitely fault on the mayor’s side, but I am saying that we have had to be very flexible in this process all the way through. I have been deeply involved in it for the past 18 months or whatever. We have always had to be very flexible, because things change. That has always been our goal. However, at the core of all that is the direction of travel of making TfL financially sustainable and understanding what it would look like by April 2023 and, thereafter, what a longer-term future for TfL looks like. That is our prize and what we have our eyes on. We would like the mayor to join us on that journey. He is not quite there yet, but I am forever hopeful.