TfL makes final decision on government funding deal

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At lunchtime today, the Transport for London (TfL) board held an urgent meeting to discuss whether it would accept the government’s offer of funding to keep London transport running.

The public part of the meeting highlighted some of the risks of not accepting the offer on the table, not just deep cuts to public transport services but even the possibility of the government taking direct control of TfL.

The most recent funding package, which covered operating costs to keep services running, expired earlier this month. Although the Department for Transport (DfT) said at the time that the funding scheme it was offering was the last available, TfL pushed back and the offer they were discussing today was, as the TfL commissioner Andy Byford “quite different” from the so-called final offer sent to them a month ago.

Andy Byford also commented that the negotiations had been “absolutely exhausting”.

As commissioner, he has long pushed for a mid to long-term settlement so TfL can plan properly. He said they operate with a “planning window of months at best, sometimes even weeks”, which is not conducive to running an organization. He also said the offer on the table would protect and respect TfL’s 27,000 staff, although it escaped in subsequent talks that a pension and salary constraint exists in the government‘s offer.

The board was reminded that all financial support comes with strings attached and that the alternative to the proposed package was a rapidly deteriorating situation at TfL, the possibility of a direct government takeover of TfL or the effective declaration of bankruptcy under a Local Government Section 114 ordinance.

Andy Byford has warned that alternatives to the offer will leave TfL “exponentially worse off” than if the board said yes to the proposed package.

Saying yes, as he said, would ‘leave TfL in charge of its own destiny’, and that it was the ‘best possible outcome that could be achieved’ in what he also described as a very unilateral. Andy Byford concluded that while the funding settlement is not entirely sufficient, it would suffice to plan for the immediate future.

TfL’s interim chief financial officer Patrick Doig outlined the financial implications in a situation where TfL faces a continuing structural reduction in passenger revenue of £1.5bn a year.

TfL’s current budget forecast is based on the ‘managed decline’ scenario, and on a like-for-like comparison to pre-pandemic maintenance, there is an £800million hole in funds. Although no new contracts were signed, with no funding settlement they had to transfer operational revenue to support pre-existing investment contracts that had been signed in the past. This means that without the deal they will have to cut services further to pay the bills TfL has already committed to.

He predicted an 18% reduction in buses and a 10% reduction in metro services would be needed to balance the books, which is far greater than the 4% reductions in bus services currently on offer.

As CFO, Patrick is also required to check whether TfL is able to operate on a balanced budget, as he is legally required to do. If he feels this cannot be achieved, then he would be forced to issue the Section 114 notice, effectively the nuclear option, forcing deep cuts to services to balance the books.

There is a gap of around £900million between TfL’s budget and revenue for this year, and that is the extent of the cuts TfL should be undertaking.

So far he has delayed issuing this Order 114 because the talks seemed to be progressing, but if the board rejects the offer on the government table today, he may be forced to take this action. .

After the initial public presentation, the meeting went into private session to discuss the fine print of the offer.

If the board, in its private discussions, decides to accept the offer, the document must be signed by the Secretary of State, Grant Shapps, and once TfL receives this signed document, he can announce that an agreement has been reached.

People must now keep staring at the TfL towers for white smoke.

UPDATE – TfL has accepted the deal. The details are here.

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