At an emergency committee meeting held on Tuesday 12 May, Transport for London (TfL) stressed their concerns over the debt crippling impact COVID-19 is having on its finances.
TfL expects to lose over £4bn this year alone due to lockdown measures put in place to tackle the spread of the coronavirus and is now calling for an emergency budget for 2021.
Because of lockdown and major restrictions put on travel in the capital, TfL has lost 90% of its overall income; a situation described as “critical” by Deputy Mayor for Transport, Heidi Alexander at the meeting. Alexandar also stressed that a Section 114 notice may have to be issued as part of a contingency plan - the equivalent of a public body going bust.
TfL has said it is costing them around £600m a month to run its network, and despite having already taken a significant amount of cost out of the organisation including the furlough of 7,000 staff and safe stop of their major project activities, over 300 construction projects, the financial savings “cannot cover the loss from the steep decline in revenue”.
TfL have modelled longer term revenue scenarios in line with modelling undertaken by Imperial College for the government. The majority of their costs are spent on their supply chain and internal labour costs: in the financial year 2019/20, TfL spent around £6bn through their suppliers. Without a stable source of income or funding during the COVID-19 pandemic, TfL have stressed the supply chain will not be able to gain adequate assurance that they will be able to fund their future commitments.
TfL is required by law to have a balanced budget, and have, therefore, prepared a proposed Emergency Budget as an interim measure until they can propose a revised budget later in the year. In which they are prioritising only what is essential for maintenance of basic services to support COVID-19 government planning and safety related activities, ensuring their employees and contracted employees remain safe.
The proposed Emergency Budget considers deliverable cost savings, TfL’s best estimates of income as well as modelling their useable reserves. The revised budget maintains that they cannot breach their £1.2bn minimum cash balance; a balance which represents only two months' worth of operating costs and is seen by TfL and its external financial stakeholders as its minimum requirements in order to operate.
During TfL’s Business Planning for 2019/20, they concluded that a reserve of £2.2bn was appropriate in order to ensure that it could meet its future financial obligations. This was based on risks that included economic down turn, Brexit, Crossrail completion and other operational and liquidity challenges, but the risk of a pandemic was not considered at that time.
Considering the above, TfL’s proposed Emergency Budget presents a funding gap of up to £1.9 bn in the first half of 2020/21 based on their revenue modelling which reflects their understanding of Government’s COVID-19 scenarios and over £3.0bn to the end of 2020/21 on the same basis.
TfL say they are currently working to resolve the funding gap outlined above with government by mid-May, and discussions are ongoing.
A TfL spokesperson, said: “We have done everything possible to help reduce the spread of coronavirus. This is the right thing to do and has saved lives.
”It is clear that the long term impact of the coronavirus will mean that we need financial support now and into the future so that we can support the recovery of London and the UK.
”We are in constructive discussions with the government over the necessary financial support.”