London Transport cost cutting strategies 20 Dec 2018

Substantial cuts in operating costs and deferred capital investments are planned by the London transport authority to balance its budget and counteract the Crossrail project delay and overspend, falling fare revenues and steep reductions in central UK Government funding. In its recently released business plan, Transport for London (TfL), which runs public transport across the capital and comes under the jurisdiction of the Mayor of London office, has placed various underground station upgrades on hold and warns of further substantial job cuts to bring its operating deficit, budgeted at £968 million in 2018/19, into line.

Crossrail delays after then UK Prime Minister David Cameron (centre), and then London Mayor Boris Johnson (left foreground), celebrated final TBM breakthrough in May 2015

As well as a drop in income from fares, forecast to be about £2.1 billion lower than originally expected over the next five years, a reduction of 7% of its largest revenue source, TfL states it has received an average cut of some £700 million per year in funding from UK central Government. In 2017/18, the £10.2 billion TfL budget was funded £4.8 billion or 47% by passenger fares; £1.7 billion (17%) by borrowings, including from the European Union Investment Bank; £2.6 billion (23%) from central and local Government grants, including the funding from central Government for the Crossrail project; and £1.1 billion (11%) from other sources including the city’s congestion charge to drive private cars into the city centre. Since March 2018, TfL said in a statement, that it has become one of the few transport authorities in the world not to receive a direct central government grant for day-to-day running costs.

The recent announcement, (reported last week (13 December 2018) on TunnelTalk), that completion of the Crossrail Elizabeth Line under the heart of London is delayed for an indefinite period from its planned and revised December 2018 and Autumn 2019 opening dates respectively, and that it will cost up to an additional £2 billion to finish, has placed severe pressure on the finances of both the Mayor’s office and the revenue offices of central Government. The economic and political uncertainty over the UK exit from the European Union has also had a downward impact on the UK economy.

Mayor of London, Sadiq Khan, has on several occasions vented his anger and frustration about the delay of Crossrail with loss of its anticipated fare revenues in addition to its cost overruns. A new management team at Crossrail Ltd is working to deliver a credible delivery schedule for opening of the Line, but assumptions are that revenue will be about £600 million lower over the coming five-year business plan to 2023/24. To provide long-term funding for modernisation of the city’s public transport network, including vital station and service upgrades and develop plans for the proposed north-south Crossrail 2, the Mayor has renewed his call on the Government to ensure London gets its fair share of the 1.2% of total GDP spend on infrastructure as recommended by the National Infrastructure Commission. UK GDP (gross domestic product) in 2017 was equivalent to US$2,622.43 billion (£2.66 trillion) and was ranked sixth in the world after USA, EU, China, Japan and Germany, according to Trading Economics.

Waterproofing installed as part of Bank Station upgrade

In the meantime, the budget shortfall is to be offset by further operating cost cuts and deferred capital investment spending. While TfL is planning to follow the introduction of new trains on the Piccadilly Line of the London Underground system with new signalling, and then to upgrade the rest of the deep Tube lines under London, such large-scale investment will not be possible without capital funding from the Government. This is also true for major station projects, including the work to transform Camden Town station.

TfL efficiency savings are stated by the authority as being ahead of target, with the net cost of operations for this financial year (2018/19) on track to be at least 20% better than budget, reducing the current operating deficit by more than £200 million. Efficiency cuts produced savings of more than £500 million in 2017/18 and plans were to achieve a net operating surplus for the first time in 2021/22. The delay to the opening of the Elizabeth Line and the continued reduction in fare revenues, has pushed the forecast to achieve a surplus on net cost of operations to 2022/23, a year later than planned. Savings in 2016/17 reduced year-on-year operating costs by more than £150 million. Prior to that, operating costs had increased every year.

Some of these savings have been achieved by cutting the number of senior managers by a total 2,700, or 13%, since 2016 with business areas redesigned. A further 30% saving targeted on back and middle office costs will see additional job losses.

To achieve these savings, more than 30 business areas have been redesigned and combined to form single divisions, for Engineering and Major Projects functions for example, and the number of senior managers has been cut by 13% since 2016, reducing the total staff by 2,700 over the last two years.

3.2km Northern Line extension with two new underground station

While the coming years will be a focus on cutting costs, under current commitments TfL said in a statement that it will:

• complete the signalling upgrade on the Circle, District, Hammersmith & City and Metropolitan Lines;
• begin modernisation of the deep Tube lines with introduction of new longer, walkthrough trains on the Piccadilly Line from 2024;
• Continue to progress underground station upgrades at Elephant & Castle and Holborn stations and complete the current upgrade works at Bank Station;
• open the Northern Line extension underground to Battersea;
• introduce fleets of new trains on the London Overground and Docklands Light Railway (DLR) systems;
• continue to develop plans to build Crossrail 2 and extend the Bakerloo Line, the DLR and tram networks in the next 20 years;
• bring into service the Crossrail Elizabeth Line; and
• unlock land for the development to make smarter use of TfL assets.

“Despite the reduction of an average £700 million per year in TfL funding from Government, the financial challenges of uncertainty in the economy, and the delay to the Crossrail project, we are pushing ahead with our ambitious plans for more affordable and accessible public transport for London,” said Mayor Sadiq Khan.

“This is the first year without a direct Government grant for the day-to-day operating costs of running transport services in London,” said Mike Brown MVO, Commissioner of London Transport. “This has coincided with tough external economic conditions that has meant lower overall passenger numbers than previously forecast. That financial pressure has been compounded by the extremely disappointing news about the delay to the opening of the Elizabeth Line. To manage these significant challenges, we have accelerated our cost reduction programme to over deliver against budget and reduce our operating deficit. This will remain an intense area of focus over this next period.”