Seven thoughts on TfL’s bail out from national government

A deserted Westminster tube station. Image: Getty.

A political earthquake hit the British capital last night. Transport for London (TfL), a public agency, found itself just hours away from running out of money, and was forced to beg national government for a £2bn bail out. 

The government agreed – but on much harsher terms than TfL wanted, offering £1.1bn in cash and £505m in loans. And since the government is in the hands of the Conservative party, while the chair of TfL is London’s Labour mayor Sadiq Khan, some observers have noticed a distinct whiff of political self-interest about the whole deal. 

So what does it all mean? Here are seven thoughts.

1. Something like this was probably inevitable

TfL has not received any operating grant from central government since 2018 – the result of a 2015 agreement between then Tory chancellor George Osborne and then Tory mayor Boris Johnson (now the, er, Prime Minister) that London’s transport network should be self-funding. That means that all the money required to keep the tubes, buses and so forth moving comes from fares: a situation unique in Britain, and probably in Europe, too.

But with the entire city in lockdown and people being advised not to use public transport, fares have collapsed – by 90%, according to TfL spokespeople. This was obviously unsustainable, even before the government began encouraging people back to work once again. So: it’s hard to see how the agency could have avoided asking for a bail out.

2. Not all of the conditions attached to the deal are terrible

Okay, the money isn’t what TfL wanted. But the promise to restore services frequencies to normal levels “as soon as possible” seems reasonable enough. Similarly, barring Freedom Pass holders – that is, retirement-age Londoners, who get free travel – from using peak hours services, seems to be a sensible measure. It not only means better demand management; it also reduces the chances that vulnerable transport users end up on the most crowded, and so potentially infectious, services.

Even the pledge to increase bus and tube fares by 1% above inflation next year – arguably in breach of Sadiq Khan’s 2016 election pledge to freeze them for his first term, and not to raise them faster than the cost of living in his second – is probably a sensible enough response to TfL’s current financial crisis. But...

3. Other elements of the bail out look like a power grab

Another condition of the deal is that government officials will sit on TfL board meetings, and that the agency will send regular financial reports to the national Department for Transport. That feels like a step back in terms of financial and operational independence. 

What’s more, the government is insisting that TfL will run public information ads using its own “Stay Alert” formulation, rather than Khan’s favoured “Stay at Home” ones. This may seem – is – petty, but national government has come under fire for the lack of clarity of its messaging: this neutralises a covert attack on it.

More philosophically, whoever holds the purse strings holds the power. Scrapping the operational grant radically reduced central government’s influence over how the mayor runs TfL. This bail out increases it once again.

4. It’s almost certainly politically motivated

Bbefore it was delayed by coronavirus, Khan was almost certainly on course to win this year’s mayoral election, and must still be considered the favourite when it (probably) finally happens next year. 

There are many reasons for this: incumbency advantage; the weakness of the Tory candidate Shaun Bailey; the fact London is overwhelmingly a liberal pro-Remain city, at a time when the Tory party has been overwhelmingly illiberal and pro-Brexit. Nonetheless, however unfair it is (a bail out was, remember, inevitable), “Khan wrecked TfL’s finances and came cap in hand to the Treasury” might just be an effective attack line on a popular Labour politician.

5. Khan set himself up for this

The mayor’s signature pledge before the 2016 election was to freeze fares. This was understandably popular – but it also risked undermining TfL’s finances further at the exact moment central government had decided to withdraw its grant. Rachel Holdsworth, then a senior editor at Londonist, argued as much on CityMetric way back in November 2015.

Khan’s partisans will say that the lack of fare rises (which has cost it £640m over four years) is nothing in comparison to the loss of the central grant (£700m a year) or the collapse in fares caused by Covid-19 (£600m a month). They’re right. Nonetheless, however unfairly, the freeze has made it possible to paint Khan as profligate.

6. But it’s not clear it’ll work

All that said – if Khan is savvy, he might be able to turn this to his advantage. The fares freeze was probably going to go at some point – now he can blame the pandemic or the Tory government for something that would have happened anyway, and for passing the cost of the pandemic onto Londoners. 

And if the cost of central government support is more central government oversight, then at least it means the return of central government support. Khan may be able to spin this. 

7. This is a sticking plaster

The bail out is worth just over £1.6bn. Spokespeople for the mayor’s office say that it currently costs £600m a month to keep TfL services running. So by my count, if nothing changes, this money will be enough to help TfL survive to somewhere around early August.

Maybe passenger numbers will be rising by then. Very possibly they won’t. I doubt this will be the last bail out TfL needs.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.


What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.

Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.