Since the start of the pandemic, Transport for London (TfL) has received close to £5bn in financial support from the Government to guarantee services in an environment of low ridership. The current package will expire on Friday (24th June).
With the current funding model and ridership levels, TfL may have to cut services to balance its finances. This would be deeply negative for London as a whole. So, how should the Mayor avoid this? And which lessons can we learn from other global cities’ transport networks?
London’s transport system is more reliant on fares than its international counterparts
The pandemic impacted mass transit systems across the world, and global cities like New York and Paris also faced massive drops in ridership over the last couple of years. However, due to the nature of its revenue models, London’s network has struggled more than its counterparts.
TfL’s reliance on fare revenues is relatively high when compared with other global cities. Figure 1 shows that more than 70 per cent of its income in 2018/19 came from fares, compared to just below 40 per cent in New York and Hong Kong, and 27 per cent in Paris. This means that a similar loss in ridership has hit London’s transport finances harder than the other cities.
Figure 1: London’s dependence on fares is much higher than in several global cities
Share of income from fares
Source: TfL (2018/19); Île-de-France Mobilités (2018); Hong Kong’s Mass Transit Railway (2018); New York’s Metropolitan Transit Authority (2019); Singapore’s Land Transport Authority (2018/19). Methodology: Île-de-France Mobilités fare revenue accounts for 27 per cent after deductions from employers and local authorities (38 per cent without deductions).
While TfL’s dependence on fare revenue could previously be considered a strength that reduced its reliance on Government funding, it became a major weakness throughout the pandemic and the subsequent recovery.
TfL’s ridership is still significantly below pre-pandemic levels
At the start of the pandemic, ridership fell significantly due to social restrictions. It reached its lowest point in April 2020, at roughly 12.7 per cent of pre-pandemic levels, and recovery has been sluggish since. By the end of April 2022 – nine months after the government lifted most of its Covid restrictions – total ridership was still 22 per cent below pre-pandemic levels (Figure 2).
Figure 2: TfL ridership is still far from pre-pandemic levels
TfL journeys (August 2019 – April 2022)
Source: TfL. Periods of 28-31 days. *Other modes include Overground (52 per cent); DLR (26 per cent); TfL rail (15.3 per cent); Tram (5.8 per cent); Emirates Airline Journeys (0.5 per cent).
The composition of the recovery also poses further financial challenges to TfL. The Tube, which is used to subsidise other modes of transport, such as buses, has recovered the least. At current levels, TfL would have around a billion fewer paid journeys this year, compared with 2019/20.
London’s mass transit needs a new funding model
In the current context, TfL needs around £1-£1.5bn to balance its budgets in 2023 – either by raising revenue or achieving operational savings. Based on its powers and experiences from abroad, the Mayor of London and TfL have some options to do this:
Within existing powers:
- Reduce costs by cutting services;
- Increase revenues from existing sources (congestion charge; council tax; raise fares);
Requiring new powers:
- Promote land development (“Hong Kong Model”) and land value capture;
- Further fiscal powers to raise local income contributions (“Parisian Model”);
- New revenue-raising tools focused on car ownership and driving (“Singapore Model”);
- A more diversified model that combines most of the features above (“New York Model”).
When analysing the best ways of raising further revenue or cutting costs, the Mayor should consider the benefits of the TfL network and who yields them. From the options presented above, cutting services and raising fares should be avoided at all costs. This would deeply deteriorate London’s urban mobility, air quality, economic engine and ability to compete with other global cities. Meanwhile raising further revenue from council taxes – a deeply dysfunctional and regressive system – would be politically difficult and may require a referendum. Raising or expanding the congestion charge also has its limitations, as it ultimately aims to reduce driving, which could either decrease revenues and/or increase ridership dependency via promoting modal shift.
Finding new revenue streams should not simply be seen as a short-term need but as an opportunity to move away from a fare-driven revenue model and closer to what we see in other global competitive cities (Figure 1). That said, the Mayor of London would need to negotiate additional fiscal powers with Government (as pointed out by the London Finance Commission).
The benefits of TfL are not only enjoyed by its daily commuters. London’s world-class urban infrastructure delivers access to jobs without the need for a car and provides businesses with pools of workers and clients. It also improves air quality and reduces carbon emissions by taking cars off of the streets. This all enables a level of density that allows productivity and economic growth, which ultimately translate into higher fiscal revenue for Government (through VAT, income and corporate tax, etc). New funding sources, inspired by other global cities, should take this into consideration.
For instance, Paris collects income from most of its workers by lauding its network as a public good; while Singapore mostly focuses on car owners, who simultaneously benefit from public transport and cause social costs to the overall population (for example, by polluting).
London’s population is only expected to grow over the coming decades, which will create more demand for public transport. By moving towards a more diversified revenue model, future increases in ridership could be used either to fund new projects or even reduce fares over the medium to long-term (which would also help workers going back to the office and high streets).
This blog is part of the TfL series, where the Centre for Cities explores different Mass Transit System funding models around the globe. The final piece of research of the series will set a range of policy recommendations, based on the models analysed.