An agreement has been reached with the Government today (1 June 2021), which extends its financial support to Transport for London (TfL) to 11 December 2021.
London’s Transport Commissioner Andy Byford said:
‘The pandemic – during which our staff have worked so magnificently to keep London moving – has shown our financial model, with such a disproportionate reliance on fare revenue, to be not fit for purpose.
‘We are working hard to rebuild revenue through attracting people back to our services with nearly 60 per cent of pre-pandemic ridership already travelling again. Today’s funding agreement with the Government provides £1.08bn in base funding and further support should our passenger revenue income be lower than forecast until 11 December 2021 to enable us to continue to run near full levels of service to stimulate London’s recovery and deliver a host of improvements like the Elizabeth line, Northern line extension and expansion of London Overground. It is vital that we also use this period to agree a longer-term settlement so that we can plan effectively for London’s future and deliver maximum value for money through our contracts and supply chain.
‘The conditions placed on us by the Government agreement and the amount of funding we will receive means we need to find a further £900m of savings or new income this year compared to our approved Budget and on top of the £730m of savings already assumed in our Business Plan. We will work through this while protecting front line services to deliver what London needs and to play our full part in recovery, decarbonisation, improving air quality and promoting active travel.’
The following information has been provided to the markets:
Government support package
TfL announces that a funding and financing package (the “Funding Package”) has been agreed between TfL and the Department for Transport (“DfT”) to support transport services in London for the period from 29 May 2021 to 11 December 2021 (the “2021 Funding Period”). The Funding Package will contribute towards TfL’s revenue loss due to reduced passenger numbers using TfL services as a result of the pandemic.
The Funding Package comprises an Extraordinary Support Grant of £1.08bn payable under section 101 of Greater London Authority Act 1999, paid in six instalments commencing on 7 June 2021. In addition, the Funding Package recognises that there are material factors beyond TfL’s control that give rise to a high level of uncertainty in forecasting passenger revenue during the 2021 Funding Period, particularly as Government guidance on dealing with the pandemic develops. Therefore, the Government will “top up” TfL’s revenues with additional grant payments if they are lower than a pre-determined passenger revenue forecast. Conversely, if TfL’s revenues are higher than the pre-determined passenger revenue forecast, TfL will be required to repay that excess at the end of the 2021 Funding Period. This provides TfL with certainty that it will receive income equivalent to £1.78bn in passenger revenue over the 2021 Funding Period in addition to the Extraordinary Support Grant of £1.08bn. This pre-determined passenger revenue scenario is broadly consistent with the revenue forecast in the TfL Budget for 2021/22, published in March 2021.
As part of the Funding Package, TfL commits to deliver savings and/or new income of at least £300m in 2021/22. However, when taking into account the amount of funding available to TfL in the Funding Package, there remains a funding shortfall compared with the TfL Budget for 2020/21. This means that TfL will, in practice, need to deliver savings and/or new income of around £900m over the course of the year. This is expected to be met through a combination of measures, including utilising cash reserves, additional non-passenger income and reduced or deferred costs. These additional savings are incremental to TfL’s existing efficiency plans.
The Funding Package assumes that TfL will maintain useable cash reserves of £1.2bn throughout and at the end of the 2021 Funding Period, in line with TfL’s current liquidity policy.
Over the course of the 2021 Funding Period, TfL will be supported by the DfT in implementing a programme of work that would allow TfL to reach a financially sustainable position as soon as possible, with a target of no later than April 2023 and a declining trajectory in the meantime of temporary Government grant support. TfL will also be required to make progress on longer term reforms which are likely to be implemented beyond 2023.
The programme of work will include the following initiatives (among others):
identification and consultation on new or increased income sources for the value of between £0.5bn-£1.0bn per annum from 2023;
a joint review of demand to inform future service level requirements and potential changes from 2022/23 onwards;
preparation of a revised medium-term capital investment programme, which will be confirmed with Government through the 2021 Spending Review;
a review of TfL’s pension scheme and potential reform options with the aim of moving TfL’s Pension Fund into a financially sustainable position;
a DfT led joint programme on the implementation of Driverless Trains on the London Underground;
a TfL plan for housing delivery through a dedicated commercial property company; and
a joint review of options for longer term reform of the funding framework for TfL, including governance and oversight.
