Extraordinary Funding and Financing Agreement for Transport for London
(2 years, 4 months ago)
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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?
Lord Patten (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Davies of Brixton. I will follow his excellent example by also declaring my interest as a resident for the whole working week in London for many years and a regular user of the District and Circle lines and the cheerful 507 bus service from Waterloo.
That said, and to pick up the noble Lord’s last point and the point he made about how important London is to the national economy, I think the Government have stepped up to the plate, keeping TfL running not with Londoners’ money but with more than £4 billion and counting of taxpayers’ money, gathered from all over the country—national money, in other words. So it is to me a considerable paradox that Members of our national Parliament cannot usually put down, say, a Written Question about TfL, because we are rightly told by the Table Office that it is independent and nothing to do with Parliament. Shedloads of money is going into London and TfL, but we cannot even have a Written Question such as the one noble Lords have tried to table in recent weeks on what is happening about the wearing of face coverings in London, because that is said to be something that is not for Parliament. So it is very hard for us to know, on behalf of national taxpayers like me, what is going on within the Bermuda Triangle that seems to me to characterise TfL accountability.
It is clear that the mayor should have done much more about the wearing of face coverings on the London Underground over the last few months and encouraging it. It is equally clear that the mayor and his team have made scant efforts to attend even to the basics in TfL, such as seeing that fares are properly collected and that fare dodgers are reasonably, properly and carefully brought to account. I hope that is something that everyone in this House would agree with.
The money to keep services running is being provided by national taxpayers, so the mayor now needs to show much more leadership and to take more financial responsibility himself. He needs to look at everything that could raise more funds to help run TfL from, for example, road users paying per mile to widening the congestion zone, however unfortunate and unpopular that might be to some, lest we be stuck into infinity with an annual round of campaigning from the mayor to cover up bus signs and shut down Tube lines in a fashion that even the late Dr Beeching would not have dared to do.
All that said, it is pretty obvious to the attentive noble Lord that I am a supporter of the Government in this, so I will save my last word for them. I certainly strongly support the Government—although I might be something of an endangered species, if you read the morning papers. As soon as the latest pandemic threats are evaluated and things get back to whatever the new normal is, I hope that Her Majesty’s Government will adopt an attitude or even a policy of creative courage where they can in order to, without any cost at all, bring passengers back into central and outer London.
One way of doing that is to bring civil servants back to their offices again, as soon as possible, for the good of the nation, London and the Civil Service itself. Bringing civil servants back to their expensive and now too often white elephant office blocks, to seeing and talking to colleagues at the coffee point and to helping and encouraging new joiners; all these things are critically important. To parody the old saying “Get on your bike”, it is more a case of “Get off your Pelotons” at home and get back into the office in the cause of a better Civil Service.
Lord Adonis (Lab)
My Lords, I entirely agree with the noble Lord that, once we know what the new normal is, we need to think boldly and creatively about the long term. However, everyone accepts that we have no idea what the new normal will be at the moment, because we are still in the pandemic. We have just gone into another wave, which is having a further negative impact on traffic levels.
It is utterly ludicrous for the Government to be forcing TfL into short-term, acrimonious funding agreements, as they have been doing every three or six months, when everyone knows that the problem is the pandemic. It is rather like denying a heart replacement patient blood on the grounds that they do not have a long-term plan for improving their fitness. Until they have survived the operation—got through the pandemic, in this case—we cannot look at these longer-term issues.
My noble friend’s strictures at the beginning were well made. Unless the Government want to kill the national economy, which I do not think they do, they simply will agree to roll on the funding; there will be an agreement tomorrow and it will be similar to the one that went before. This is wasting a huge amount of time and energy among the senior management of TfL and in the Department for Transport, where I know officials are at their wits’ end, having to go through this charade of negotiations, knowing that the status quo will be the status quo ante until we get to the end of the pandemic.
When we get to the end and know what the new normal is, some very hard questions will of course need to be asked. But we need to know what the new normal is in terms of traffic levels, and these are very hard to predict; I have seen a whole range of potential traffic levels. The report done for the mayor, the TfL independent review of a year ago, suggested we might get to about 80% of traffic levels. I have looked at the sourcing for those estimates and, to be frank, this is fingers in the air stuff—the Minister will probably agree with that. We simply do not know what the new normal will be.
It was very striking that, when so much encouragement was given to people to come back to the office and resume normal activity after the second lockdown, traffic levels were restored remarkably quickly. The idea that there is somehow going to be a systemic loss of traffic may be far too gloomy a prediction.
When we do know what the new normal is, we obviously need to address this. I will highlight very briefly four issues that we should address. The first has to be bus priority. If buses in London went, on average, 1 mph faster than they do at the moment, it would save TfL nearly £200 million a year in the running costs of the bus network, with fewer buses, much more efficient operations and so on. It should not be beyond the wit of good transport managers in TfL to ensure improved bus priority to get buses moving faster. There has been a significant reduction in average bus speeds in London over the last 10 years, because of a failure to join up policy properly when we are all in favour of faster buses in principle—
Lord Adonis (Lab)
My noble friend says that priority cycle lanes are a problem; we can debate that issue, but there needs to be much better joining up and we should encourage the mayor to look at that as a key priority.
The second issue has to be the future of congestion charging and road pricing in London. At the moment, we have a hybrid system of a low emission zone and a small congestion zone for which prices have gone up a lot. We need to join up and look at the longer-term role of congestion charging.
I will mention two other points and will be very brief, because my time is nearly up. We need to look at reform of council tax arrangements as part of future arrangements. There is a very strong argument for an additional council tax band, given what has happened to property values in the capital over the last 30 years, and that could help to fund Transport for London.
Finally, when Crossrail and the Elizabeth line open, I hope, next year—we are looking forward to it—a big issue will be the interaction between the transformational additional capacity of Crossrail, with its 10% of additional transport capacity in London, and new housing, which will also produce new council tax revenue. So, there are four big things that should be looked at, but not this short-term, ludicrous funding crisis that we have been going through during the pandemic.
Lord Moylan (Con)
My Lords, I live in London. I have a 60-plus Oyster card. I was a TfL board member for eight years and deputy chairman for half that time. I have great affection for Transport for London. Nobody wants to see a long-term settlement for it more than I do, but, as the noble Lord, Lord Adonis, just explained, it is impossible to put one in place at the moment.
A comparison is sometimes drawn with the train operating companies, which have been funded. Politically, constitutionally and legally, they are agents of the Government. The difference is that, politically, constitutionally and legally, TfL is an agent of the mayor. To understand the Government’s anxiety about entering into a long-term settlement with the mayor, one needs a forensic understanding of his financial responsibility over the past four years. He was elected in May 2016. The pandemic hit in March 2020, almost exactly four years later. I want to concentrate on those four years.
Before the pandemic hit, the mayor came into office with two dangerous pledges. One was a fare freeze at a time when public transport was heaving with people and there was money for him to collect. As he has accepted, the cost of that fare freeze over a four-year period was £600 million; that is £600 million forgone. He added to that the Hopper fare on buses, allowing people two rides in an hour. TfL budgeted £35 million per annum to fund that, only to find after a year that there were 100 million usages at £1.50 a pop. That is a top figure; TfL will not give an estimate. It is a bit complicated—some people might have hit the daily cap, for example—so let us be generous and say that this represented only £130 million forgone per year. That means another £600 million forgone over four years, adding up to £1.2 billion left on the table by the mayor in the fat years. The result was a subsidy for the buses, which hit £600 million under Ken Livingstone. Under Boris Johnson, that was brought down to £450 million with no loss in bus mileage. Under Sadiq Khan, before the pandemic, it rose to £750 million a year, with a 7% cut in bus mileage to go with it.
The mayor’s second pledge was that there would be no strikes on the Underground. That is an easy, but expensive, pledge to fulfil: you just give in to the unions. Until recently, that is exactly what he did. One consequence of that has been a considerable growth in the number of Tube drivers. The system needs about 3,000 as a minimum to run. When I last looked, before the pandemic hit, there were in excess of 4,000. Let us say that there are 1,000 excess posts at roughly £50,000—possibly £60,000 now—a year. That is £200 million over four years, which brings us up to £1.4 billion forgone. To his credit, the mayor embarked on a reduction in the management head count but, given the generous severance packages negotiated by the unions, it will take several years for TfL to see the cash-flow benefits of that come through.
There is little to say on Crossrail, given the time. According to the mayor’s own account, he was totally surprised and shocked when it blew up in his face—presumably because he had taken no interest in it up to that point.
Of course, from his own resources, the mayor could not have coped with the pandemic. Nobody is suggesting that, even if that £1.5 billion or so was in the bank waiting to help him through, he could have got through a pandemic of the length we have seen without government subvention. However, it is hard to discern how he has faced up to the hard choices that this sudden, possibly continuing, loss of income has made for TfL. There is a lot of pleading for money from him but very little leadership; this is consistent with his behaviour in the fat years.
My noble friend the Minister will have her own view but, having myself struck long-term deals for TfL with, among other people, Conservative Governments and the noble Lord, Lord Adonis, who just spoke, I well understand the difficulties that the current Government have in doing so now.
Lord Berkeley (Lab)
My Lords, the debate so far has been very interesting, but it all started because the income that TfL gets from its passengers has gone down due to Covid. There is no argument about that. What is worrying is that it has affected TfL much more than it has transport in other cities. London First has said that 70% of TfL’s income in London comes from fares, compared with 38% for authorities in New York and Paris, so it is much more reliant on fares. As noble Lords have said, there is not a lot that we can do about it at the moment.
This has got worse because we have many more people using public transport in London than in other cities—about three times as many. However, it is worse than that because, so far, London has been given about three times the income per head of population than other cities in this country have been given. What comes out of this debate and the comments made is the question of who is in charge, and of devolution. Many noble Lords have criticised the present mayor; I could criticise the previous one, who did one good thing in producing more bus lanes but did many other things that I could criticise heavily. We criticise them but, after all, the mayors are elected.
The Government are now saying that there will be more devolution, particularly for transport in the north and the Midlands—we can debate another day whether it is the northern powerhouse or something else—but if these organisations, including TfL, are elected or come about as the result of an election, we have to allow them to get on and win or fail, depending on what the electors think.
What really got me about this debate was the letter from the Secretary of State for Transport to the mayor, dated 1 June this year. It set out six months of settlement and was 20 pages long, with enormous detail about how many driverless trains there should be and all sorts of other things. I will not go through it now, but does a mayor really need a 20-page document with a lifespan of just six months—it will run out tomorrow—telling him in detail exactly what to do for an authority that is supposed to be devolved?
I do not know what the Government are going to do to sort this one out—noble Lords have given them many ideas; I have a few myself, although I will not come on to them today—but this is the kind of thing that northern cities, such as Manchester and Leeds, will want from devolution. They will want someone to say, “Right, here is your scope of work. This is the amount of money you’re going to get—now get on with it.” But that is not what is happening up there at the moment; it certainly is not happening in London, either.
I hope that, when she responds, the Minister will say, “We do believe in devolution. We are going to let go and, in the end, let the electors decide who is doing well and who is doing less well.”
Lord Shipley (LD)
My Lords, the noble Baroness, Lady Kramer, has asked me to present her apologies for not being able to speak this afternoon. However, I think she would agree with me that the problems of TfL have been well reported and debated in recent weeks. From the perspective of the travelling public, the commitment of Ministers in principle to find a long-term agreement that will enable TfL to plan for the future is most welcome.
I do not want to repeat the history of TfL’s financial problems, so clearly explained by the noble Lords, Lord Davies of Brixton and Lord Moylan, and others. Clearly, the huge reduction of journeys from 120 million on London Underground in a five-week period in autumn 2019 to 39.5 million over a similar period a year later means severe financial dislocation, given that fares represent a high proportion of overall income for TfL.
As the noble Lord, Lord Davies of Brixton, suggested I might, I want to broaden the issues a little because the problems of financing in London, while not quite the same, are similar elsewhere in England. Many areas will face managed decline in service provision unless further financial support is forthcoming. In the case of the Tyne and Wear Metro, which I use regularly, the Government have confirmed that emergency Covid-19 payments, which have been paid through the pandemic, will cease at the end of March 2022. If this situation continues, there will be a major shortfall of just over £20 million in the 2022-23 financial year, most of which is caused by the impact of Covid on ridership. Given yesterday’s announcement asking those who can to work from home, ridership will now fall further, having got back to 85%—although not 100%—of pre-pandemic levels in recent weeks.
To make up nearly £21 million on Metro income, support for bus services will have to fall significantly. That means reductions in concessionary bus fares and in secured services, and this will impact in turn on bus company income. Stretching income—which is the intention—will be extremely hard given the long-term nature of the pandemic and its impact, and use of reserves is of course finite.
Lack of further support for Metro will lead to major cuts in bus services, particularly in those areas without Metro. In view of yesterday’s announcement, it seems essential that this matter is urgently reviewed. Perhaps underground and light rail should be treated the same as the national rail network. Metro is an essential transport system supporting the economy of Tyne and Wear, and the financial shortfall is caused by the pandemic. I hope the Minister can agree that an extension of help after March next year would now be justified, as it would be for all areas suffering income loss on light rail.
As we have heard, for the sake of the economy we have to keep the country moving. Decisions are becoming urgent since budgets will need to be set four weeks from now in mid-January.
Lord Hendy (Lab)
My Lords, I too declare an interest as a Londoner and a Freedom pass holder. I am also standing counsel to the RMT, ASLEF and Unite, which means that from time to time I advise and represent those unions. I have not been called on in relation to the issue now before the House and, needless to say, I represent nobody but myself.
The interests of the Government, the Department for Transport, the mayor, TfL, Londoners and visitors are obvious. My concern in the present negotiations between the DfT and TfL is: what about the workers? These are the people who, as essential staff, kept Londoners working and travelling during the pandemic. Almost 100 workers on London’s transport died because of Covid, together with an unknown number of cab drivers, private hire drivers and delivery riders.
Uncertainty of funding means uncertainty of employment. We understand that TfL must prepare for the worst as the current funding package runs out, but whether its worst-case scenario of an 18% cut in bus services and a 9% cut in Underground services turns out to be too pessimistic, the staff working the buses and the Tube are left anxious and worried that some of them may lose their livelihoods and others have their hours and/or pay cut. This is no way, as they say, to run a railway. Nor are cuts to jobs in London transport, as the noble Lord, Lord Moylan, implies, any way to build back better or to prepare for a green transition.
Just as TfL—and indeed the Government—needs long-term planning, so do the individual members of its staff and their families. I ask the Minister to assure the House that when agreement is reached for funding past 11 December, the department will then sit down with TfL to agree a long-term plan for funding so that finances do not lurch from one half year to the next. I ask her too to undertake to ensure that the unions are at that negotiating table. Staff are entitled to have their voice heard on long-term strategy as well as day-to-day issues.
Lord Rosser (Lab)
I congratulate my noble friend Lord Davies of Brixton on securing this very timely debate. We well remember Mr Chris Grayling when he was Secretary of State for Transport making it clear that he was not handing over responsibility for any rail services to TfL because that would mean giving them to a Labour mayor—full stop. There was no consideration of what was logical or in the best interests of London and Londoners, just a crude display of party-political antagonism on his part. The next few days will show whether we are going to see a similar approach to determining policy on TfL from the current Secretary of State for Transport.
Since the onset of Covid, Transport for London and TfL staff have kept London’s transport network going at the behest of the Government and in line with government guidance, thus enabling key workers in particular to get to and from their vital work—vital work that cannot be carried out from home. Inevitably this has led to a major hole in TfL’s finances, as numbers of passengers travelling during the pandemic— and therefore income—fell dramatically and still remain well down on pre-pandemic levels. If Sadiq Khan had been as profligate as his immediate predecessor as mayor, under whom debt increased fourfold, the financial position would be even worse. The latest confusing announcement from the Prime Minister yesterday on new Covid restrictions—which by an interesting coincidence was made on the same day that the main news story until then had been the Christmas party at 10 Downing Street—is almost certain to have a further adverse effect on TfL revenue, as my noble friend Lord Adonis said.
Previous financial settlements during Covid have all been, at the Government’s insistence, on a short-term basis, and the necessary financial support has been forthcoming only with strings attached, with the Government telling the London mayor—a mayor with a recently renewed mandate from the people of London —what policy changes he must accept before that financial support will be provided.
We now appear to be going through the same process again, with the deadline just a couple of days away. The Secretary of State does not seem keen to work with the mayor in the interests of Londoners and the London economy. Perhaps like Mr Grayling, this is because he is a Labour mayor, and the Secretary of State, one suspects, wishes once again to use the considerable leverage he has to in effect impose policy changes.
The Government argue that they act in the interests of all taxpayers. This is a surprising claim from a Government who wasted billions of pounds—way in excess of anything that Transport for London needs to keep its vital transport network going—on a largely failed test and trace system, and who handed out major contracts to political sympathisers without competitive tendering.
The Government claim that TfL has more than enough money to keep services running at their current levels, when the reality is that TfL needs at least £245 million for the rest of this financial year and £1.1 billion for next year. That is based on a “managed decline” scenario in investment and services which will only make the situation worse in the future. As it is, TfL has already reduced its planned spend on enhancements and extensions by £5.7 billion over the next 10 years. The Government seem to think that there is no link between running services and capital funding. Government support has to cover both. Investing to maintain and improve the transport infrastructure is vital to sustaining the quality and reliability of rail and bus services.
The Government claim that they want to give TfL a longer-term deal. But in the October 2020 funding deal the Government said that:
“During the course of the H2 Funding Period, HMG want to work with TfL on 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.”
Needless to say, with this Government, a long-term settlement did not materialise in March 2021 or any time since, and the spending review did not grant any of the funding TfL requested.
TfL, the mayor and London’s businesses have been clear that TfL has been playing, and continues to play, a central role in the economic recovery of London and the UK as a whole. We shall find out in the next day or two whether the Government can finally bring themselves to recognise that too.
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 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.