Transport for London (TfL) has negotiated a £1.6bn rescue package with the Department for Transport (DfT) as a result of the devastating financial impact of the national lockdown.
TfL had been forced to dip into its emergency savings and was on the financial brink, threatening to withdraw services as it was running out of cash.
The 'extraordinary funding and financing support package' is based on the assumption that the funding shortfall will be £1.6bn for the period 1 April 2020 to 17 October 2020.
Following intensive talks with Government, the package comes in two parts:
- An extraordinary Support Grant of £1.095bn payable under section 101 of the Greater London Authority (GLA) Act 1999
- Incremental borrowing by Transport for London from the Public Works Loan Board of £505m (the "PWLB loan").
In a statement to the London Stock Exchange, TfL said the amount of money could be increased if more was needed.
'Given the uncertainties in predicting demand, if the actual funding shortfall for such period is greater or less than £1.6bn, then the amount of the Grant and the PWLB loan will increase or decrease proportionately, up to a maximum of £1.9bn in aggregate. The funding requirement will be kept under review throughout the period to 17 October 2020,' it said.
A key issue now facing London mayor Sadiq Khan is whether or not to maintain a promised fare freeze that he made a central part of his mayoral election campaign.
Almost certainly the subject will have been raised in negotiations, with the DfT pushing Mr Khan to put prices up.
Transport secretary Grant Shapps said: 'It is very important in providing a rescue package for TfL, that the London mayor can work with, that we don’t end up in a situation where people from outside the capital are unfairly carrying the burden.
'This means sadly, fares do have to rise with inflation otherwise everyone knows there is less money going into the system. You can’t then have an unfair settlement where other British taxpayers are bailing out the system. Albeit, in this case, the system is in trouble clearly by the Coronavirus. So there is the right balance to be made.'
Following the national lockdown on 23 March, TfL saw a dramatic fall in fare revenue, with an overall operating income loss of around 90% including non-passenger incomes, such as advertising revenue.
TfL figures suggest it costs around £600m a month to run London's entire transport network, while fares earned TfL £4.9bn in 2019-20, making up 47% of its income.
The lockdown saw a 95% reduction in journeys on London Underground and an 85% reduction in journeys on London's buses.
Despite this TfL carried on operating up to 70% of peak Tube services and over 80% of bus services despite many staff falling ill, and being in self isolation. From next week, it plans to further increase services beyond this building slowly up to 100%.
TfL has prepared an interim view of its forecast financial position, assuming the prioritisation of essential services and activities, based on revenue modelling that reflects TfL's understanding of Government's COVID-19 scenarios.
It presents a funding gap of up to £1.9bn in the first half of 2020/21 and over £3.0bn over the full year.
London's transport commissioner Mike Brown MVO said: 'Throughout the pandemic, transport workers have played a heroic role in the response to the virus –ensuring NHS and care staff have been able to get to work and save lives.
'Enormous challenges remain, including agreeing longer-term sustainable funding for transport in the Capital. In the meantime, we will continue to do everything in our power to help deliver a successful recovery for our great city.'
As people return to using the Tube, TfL has released guidance to passengers calling on them to avoid the busiest times, to wear non-medical face coverings and to walk and cycle whenever possible.