Extraordinary Funding and Financing Agreement for Transport for London

Lord Davies of Brixton Excerpts

Thursday 9th December 2021 Lords Chamber

Asked by

[Lord Davies of Brixton]

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.

[Lord Davies of Brixton (Lab)]

My Lords, I should perhaps mention, in the interests of full disclosure, that I live in London and am the proud holder of a Freedom pass.

My Question is of course highly topical; the deadline is tomorrow for the Government and TfL to reach an agreement on the future funding of transport in London. That is not just the Underground and the buses; it is the roads and the whole transport system for London.

My intention in raising the matter is not so much to discuss the details of a possible agreement as to ask about the process and timing by which such agreements are reached. In short, what my Question is really asking is whether the Minister agrees that there must be a better way of doing this and, if so, what the Government propose to do to bring it about. Perhaps there has been some news since I last checked, by my Question still stands. Even if an agreement is reached tomorrow, we still need the Government to tell us what steps they will take to improve the system by which such agreements are reached.

By way of background, in addition to the excellent brief produced by the Library, it is worth emphasising that this will be the fourth in this series of deals for relatively short periods since we were struck by the pandemic. There was May to October 2020; there was October 2020 to March 2021, subsequently extended to May 2021; and, most recently, there was May to December 2021, which expires on Saturday. Obviously, part of the reason for this pattern has been the unknown and unknowable progress of the pandemic, emphasised most recently by the Government announcing yesterday that everyone should, where possible, work from home. We simply do not know how people will react and how this will affect ridership.

I therefore welcome the Statement made to the Evening Standard by Paul Scully MP, the Minister for London, that the Government remain committed to make up TfL’s loss of fare revenue from Covid. It would be good and appropriate if the Minister could make a more formal commitment to that policy from the Dispatch Box.

The problem, however, is that short-term fixes to cover lost fare revenue simply do not work for Londoners. Those who travel on TfL services deserve something more certain in the longer term in terms of both revenue and capital. It is important to understand that TfL’s budget does not just cover day-to-day running of services; it must cover the capital needed to maintain and, where necessary, update services to deal with the changing needs of both Londoners and the visitors whom we welcome to our great city. For example, some of the rolling stock is near or at the end of its working life and its replacement simply cannot be deferred.

The practical difficulty is that TfL is, in effect, a local authority and is bound by the rules that govern local authority finance. What this means in practice is that it cannot budget for a deficit and is legally required to plan for the worst-case scenario. Consequently, unless and until a formal agreement is reached on additional funding and signed on the dotted line, TfL has to plan for substantial cuts in expenditure, both in services and capital, in case a deal fails to materialise.

Perhaps other noble Lords will mention the sorts of cuts that TfL has had to consider; I want to make just one specific point about any possible deal. It would be totally wrong to make TfL’s staff, who have served us so well during the pandemic, facing real danger in their day-to-day work, pay for the problems that have arisen. They should not have to pay now through real- terms cuts in their pay and conditions or cuts in their future pensions—there is always a pensions angle.

It is a shame that speakers in this debate are so London-centric, as one important point I want to emphasise is that this is not just an issue for London—I look forward to the remarks of the noble Lord, Lord Shipley. The Government’s own statements make this clear. In their Integrated Rail Plan for the North and Midlands, they refer explicitly to London’s transport system and state:

“Bringing local transport systems outside London to the standards of the capital is a critical part of levelling up, driving growth and prosperity.”


Two things flow from this statement which are relevant to London. First, London and TfL set the standard to be achieved, and cutting back on services in London has no part in the Government’s trumpeted policy of levelling up. Will the Minister confirm that that is the case?

Secondly, the growth and prosperity of London depends as much on having a good transport system as it does in the north and the Midlands. The point that is too often missed from debates about levelling up is that this is not a zero-sum game; growth and prosperity in the north and Midlands depend to a significant extent on growth and prosperity in London. It is worth noting that London currently has the highest unemployment rate of any UK region. This is bad news for everyone—not just for Londoners but for the whole country and our economic prospects. The Government must recognise that London has a critical role to play in the nation’s economic recovery. I am sure that the Minister knows all this but, for whatever reason, we have ended up in this absurd situation where there is no certainty about TfL’s funding in two days’ time.

To return to my original question, does the Minister accept that the Government have a responsibility to avoid this sort of brinkmanship in these negotiations? She may well blame the mayor, but does she accept any responsibility? In any event, what constructive steps will the Government take in future to achieve the necessary longer-term agreement that should be put in place?

--- Later in debate ---

[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.