Blog Post

A deal for Transport for London should be top of the Mayor’s priorities

As Sadiq Khan’s second term gets underway, Richard Brown explains why striking a long-term deal with the government on funding Transport for London should be top of his list.

Transport for London (TfL) is the seat of the Mayor of London’s most significant power and responsibility. Welded together in 2000 from an assortment of public corporations, government agencies and joint committees, TfL spends more than £10 billion every year and employs more than 25,000 people. While London’s Mayor is underpowered in many respects, their control of this integrated transport authority is envied by many other cities in the UK and beyond.

Right now, transport is also Sadiq Khan’s biggest headache and biggest priority. TfL’s revenues collapsed during the pandemic, as passengers stayed home, and the network has only been saved from bankruptcy by government support packages, repeatedly agreed at the last minute and accompanied by terms and conditions that have nibbled away at the Mayor’s authority.

The latest support package is due to expire on 18 May, so the next cliff-edge is approaching fast. TfL have been arguing for a longer-term settlement, and their scenario planning predicts suppressed income till 2024/25 in almost any conceivable future. With neither mayoral or general elections scheduled till 2024, and the pandemic in what we all hope is irreversible retreat, obstacles towards striking a longer-term deal should now be surmountable.

Doing the right deal will require radical thinking from the mayor and government alike. Pushed to find new sources of funding for infrastructure investment as well as operations, Sadiq Khan has argued that TfL should receive the £500 million that Londoners pay in vehicle excise duty (VED), which is currently ring-fenced to pay for road repairs outside the capital. Alternatively, there have been discussions of a charge for people driving into London from outside.

Neither proposal bears much scrutiny: the VED settlement is indeed unfair to London, but is a declining revenue source, and allocating more to London would mean allocating less outside the capital (or government making up the balance). A boundary charge would be another way of making those who live outside the capital pay towards the services that they use, but would likely have a negative effect on people living and working around the edge of London, and could generate more hostility to the capital at a time when it needs support and visitors.

A more equitable approach would be London-wide road user charging, to replace the increasingly complex hierarchy of charging zones and fees, as recommended in Centre for London’s 2019 report, Green Light. A pay-by-the-mile scheme, which reflected congestion, pollution and the availability of public transport alternatives, could raise substantial sums. For example, an average charge of 5p/mile for cars and light goods vehicles, and 50p/mile for HGVs, could raise as much as £1.5 billion every year – twice as much as is currently raised by the congestion charge.

Such a scheme would also make policy sense. It creates incentives for lower carbon transport options, rather than using public transport revenues to cross-subsidise highways maintenance, as is currently the case. The Green and Lib Dem candidates both argued the case for road user charging during the mayoral election campaign, but Sadiq Khan was more cautious, committing only to “ask TfL to consider other ways of raising income to make up for the loss of VED” if the Government refuses to pay up. And you can see why – the politics of restrictions on car use have become a hot button issue in this election. But now, at the beginning of a three-year term, is the time to make the case for bolder action.

But if transport funding is the elephant sat solidly in Sadiq Khan’s in-tray, it should have at least one foot planted in Government’s. Under a deal negotiated with Boris Johnson, when he was Mayor, central government grant support for TfL was phased out, with business rates and fares plugging the gap. All very well when London’s economy was booming, but even the most optimistic scenarios see business rate revenues and fares alike suppressed in the short- to medium-term.

London’s transport system could be allowed to decline, and this is one the scenarios explored by TfL, but this would be a hugely retrograde step, which would deal a substantial blow to the capital’s chances of recovery and of achieving zero carbon targets, and to tax revenues from London supporting public services across the country.

Government knows this, so they know how costly it could be to starve London’s transport system of resources. If the Mayor can show he has the vision to transform London’s public transport funding model, the Government should make available the funding to support him during an economic crisis that has hit London particularly hard.

Richard Brown is Interim Director at Centre for London. Follow him on Twitter. Read more from him here.