What’s subsequent for Transport for London?


Since the start of the pandemic, Transport for London (TfL) has received nearly £5bn in financial support from the Government to ensure services in a low-passenger environment. The current package expires on Friday (June 24).

With the current funding model and driver numbers, TfL may need to cut services to balance its finances. This would be profoundly negative for London as a whole. So how was the mayor supposed to avoid that? And what lessons can we learn from the transport networks of other global cities?

London’s transport system relies more heavily on fares than its international counterparts

The pandemic has impacted mass transit systems around the world, and global cities like New York and Paris have also faced massive declines in ridership in recent years. However, due to the nature of its revenue models, the London network has struggled more than its counterparts.

TfL’s reliance on fare revenue is relatively high compared to other global cities. Figure 1 shows that fares accounted for more than 70 percent of revenue in 2018/19, compared to just under 40 percent in New York and Hong Kong and 27 percent in Paris. That means a similar loss of ridership has hit London’s transport finances harder than the other cities.

Figure 1: London’s dependence on tariffs is much higher than in some world cities

Share of revenue from tariffs

Source: TfL (2018/19); Île-de-France Mobilities (2018); Hong Kong’s Mass Transit Railway (2018); New York Metropolitan Transit Authority (2019); Singapore’s Land Transport Authority (2018/19). Methodology: Île-de-France Mobilités’ fare revenue accounts for 27 percent after deducting employers and local authorities (38 percent without deductions).

While TfL’s reliance on fare revenues could previously be seen as a strength that reduced its reliance on government funding, it became a major weakness during the pandemic and subsequent recovery.

TfL ridership is still well below pre-pandemic levels

At the beginning of the pandemic, passenger numbers fell significantly due to social restrictions. It bottomed out in April 2020 at about 12.7 percent of pre-pandemic levels, and the recovery has been sluggish since then. By the end of April 2022 — nine months after the government lifted most of its Covid restrictions — total ridership was still 22 percent below pre-pandemic levels (Figure 2).

Figure 2: The TfL driver numbers are still far from the pre-pandemic level

TfL trips (August 2019 – April 2022)

Source: TfL. Periods of 28-31 days. *Other modes include Overground (52 percent); DLR (26 percent); TfL Bahn (15.3 percent); tram (5.8 percent); Emirates Airline Journeys (0.5 percent).

The composition of the reclaim also poses further financial challenges for TfL. The subway, which is used to subsidize other modes of transport such as buses, has recovered the least. At current levels, TfL would have around a billion fewer paid trips this year compared to 2019/20.

London’s public transport needs a new financing model

In the current context, TfL needs around £1bn to £1.5bn to balance its budgets in 2023 – either by increasing revenue or delivering operational savings. Based on his powers and experience from abroad, the Mayor of London and TfL have a few options for doing this:

Within existing powers:

  • Reduce costs by slashing services;
  • Increase in revenue from existing sources (toll, council tax, fare increase);

Requires new powers:

  • Promotion of rural development (“Hong Kong model”) and land valuation;
  • Further tax powers to levy local income contributions (“Paris Model”);
  • New sales growth tools focused on owning and driving cars (“Singapore Model”);
  • A more diversified model that combines most of the above features (“New York model”).

When analyzing the best ways to generate additional revenue or reduce costs, the mayor should consider the benefits of the TfL network and who is delivering them. Of the options presented above, service cuts and fare increases should be avoided at all costs. This would have a lasting negative impact on urban mobility, air quality, the economic engine and London’s competitiveness with other global cities. In the meantime, raising further revenue from municipal taxes – a deeply dysfunctional and backward system – would be politically difficult and could require a referendum. Increasing or expanding the congestion charge also has its limitations as it ultimately aims to reduce driving, which could either reduce revenue and/or increase passenger dependency by encouraging modal shift.

Finding new revenue streams should be viewed not just as a short-term imperative, but as an opportunity to move away from a price-driven revenue model and move closer to what we see in other competitive global cities (Figure 1). However, the Mayor of London would need to negotiate additional tax powers with the government (as highlighted by the London Finance Commission).

The benefits of TfL don’t just accrue to daily commuters. London’s world-class urban infrastructure provides access to jobs without the need for a car, and provides businesses with a pool of workers and customers. It also improves air quality and reduces CO2 emissions by taking cars off the roads. All of this allows for levels of density that enable productivity and economic growth, ultimately leading to higher tax revenues for the government (through VAT, income and corporate income taxes, etc.). New funding sources inspired by other global cities should take this into account.

For example, Paris rakes in income from most of its workers by promoting its network as a public good; while Singapore mainly focuses on car owners, who simultaneously benefit from public transport and incur social costs for the population as a whole (e.g. from pollution).

London’s population is expected to continue to grow in the coming decades, leading to greater demand for public transport. By moving to a more diversified revenue model, future increases in ridership could either be used to fund new projects or even lower fares in the medium to long term (which would also help workers get back to the office and onto the high streets).

In the coming weeks, the Center for Cities will analyze in more detail how different global cities fund their public transport models and what powers London needs to replicate such policies.