Report 3, Appendix A
Finance & Performance
John Barry Committee Coordinator Budget and Performance Committee London Assembly City Hall The Queen‟s Walk London SE1 2AA Dear John Budget and Performance Committee – 4 September 2008
City Hall The Queen‟s Walk More London London SE1 2AA Switchboard: 020 7983 4000 Minicom: 020 7983 4157 Web: www.london.gov.uk Our ref: barry201008a Date: 20 October 2008
Further to John Biggs‟ letter to the Mayor requesting further information following the Mayor‟s appearance before the Committee which he asked to be sent to you, this is set out below. I apologise for the delay in responding. Fares information The following information on fares has been prepared by TfL. Fares package for 2009 With regards to the evidence of the „black hole‟ referred to in press announcements, the revenue forgone following the decisions on fares made by the previous Mayor for TfL were as follows: September 2007 reduction in Oyster bus „Pay as You Go‟ (PAYG) from £1.00 to 90p reduced annual income by £13m (£130m+ over period to 2017-18) September 2007 reduction in weekly bus pass from £14 to £13 reduced annual income by £11m (£110m+ over period to 2017-18) January 2008 fares freeze instead of RPI+1% reduced annual bus and Tube income by nearly £60m (£600m+ over period to 2017-18)
Advice to the current Mayor After the Mayor was elected he discussed a wide range of issues with Transport for London, including the current financial position and the state of the business plan going forward, given the more challenging general economic outlook and the actions of the previous Mayor. In particular TfL were asked to see what efficiencies might be possible prior to coming to any decision on fares. TfL were also asked to review the case for a replacement to the Venezuela-funded discount scheme as part of any package. During the summer TfL had further discussions with the Mayor about the specific options within any fares package,
Direct telephone: 020 7983 4233 Fax: 020 7983 4241 Email: martin.clarkel@london.gov.uk
including reinstating the £1 bus Oyster PAYG fare and a replacement discount scheme for those on low incomes. These discussions were had in the context of discussions on TfL‟s overall financial position, and future savings plans. At the end of August the Mayor confirmed his intentions with TfL in respect of specific fares, including actual levels following the release of the July RPI figure upon which fares rises are based. The Mayor formally directed TfL to adopt the fares package and announced the proposals in early September. Advice to the previous Mayor The sequence of events was as follows: 25 October 2006 The TfL Board, chaired by the Mayor, approved TfL‟s Business Plan which assumed fare increases of RPI+1% for the Tube and RPI+2% for buses for each year of the plan through to January 2010. April-June 2007 During this period, the Mayor‟s advisors advanced the view that the strength of London‟s economy in the form of higher than anticipated passenger numbers and other factors leading to underspends in TfL‟s budget meant that some of the annual increases were not justified and could be returned to Londoners. TfL challenged this, arguing that, whereas fare reductions reduced income for all time, higher passenger numbers and underspends in any one year (eg lower bonus payments to PPP contractors due to their poor performance) had a one-off impact on TfL‟s finances. The Mayor subsequently decided to cut bus fares from September. 18 June 2007 The Mayor publicly announced that, with effect from 30 September 2007, the single Oyster „PAYG‟ bus fare would fall from £1 to 90p and the price of a weekly bus pass would reduce from £14 to £13. The Mayor said that he was able to deliver this with no impact on TfL‟s investment programme or financial risk to the transport budget due to increased passenger numbers and efficiencies at TfL. 27 June 2007 The TfL Board noted the formal Direction from the Mayor to implement the bus fare reductions announced on 18 June. September – October 2007 Parallel discussions between the Mayor and Ministers on the overall Spending Review outcome for TfL, covering levels of funding necessary to support borrowing for Crossrail as well as funding the rest of TfL, were based on annual fare increases of
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RPI+1% for the Tube through to 2017-18. This had been made explicit in TfL‟s written briefings for the Mayor for his meetings with Ministers. 30 September 2007 The fares reductions announced on 18 June came in to effect and a press release issued confirming this. 22 October 2007 A regular meeting between the Mayor and TfL officials confirmed the Mayor‟s intended fares structure for 2008. His decision was to freeze single fares on the Tube and buses and increase Travelcards by RPI only but revert to RPI+1% for the Tube and RPI+2% for buses for the January 2009 and January 2010 fare changes. 24 October 2007 The TfL Board, Chaired by the Mayor, approved TfL‟s Business Plan. There was no specific discussion of fares during the Board meeting but the figures in the plan, while reflecting the decision for 2008 fares taken on 22 October, continued to assume that from January 2009 onwards fares would rise at RPI+1% for the Tube and RPI+2% for buses. Paragraph 4.5 on page 67 of the Business Plan considered by the Board stated that: “The Business Plan is predicated on real-term increases in the level of income from fares and charges over the period 2005-06 and to 2009-10 to ensure that the Investment Programme can be financed.” 30 October 2007 A press release announced that for 2008 the Mayor had decided to freeze single fares on the Tube and buses, whether using Oyster or cash, and that Travelcards would rise by RPI. The Mayor said that he was able to deliver this due to record passenger numbers and careful control of TfL‟s operating costs. However, at a press conference the same day, the Mayor went further than in the press release and said that he did not anticipate that in years to come there would be a need for fare increases beyond the rate of inflation. E-mails written that day demonstrate that senior TfL officials were taken by complete surprise. Transport Commissioner Peter Hendy wrote: “No idea how this gels with RPI+1 for Crossrail?!” Managing Director of Finance, Steve Allen, replied:
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“Quite. I think we‟ve been very clear that our assumption in the Business Plan is RPI+1/RPI+2 for Jan 09 and Jan 10 and that we‟ve assumed 1% to those numbers and assumed RPI+1 long term in the context of the Spending Review, Metronet and Crossrail. I am sure Ken understood this.” “I am thus somewhat bemused by his statements and concerned that he may have boxed himself into a tighter fares policy than we thought we had agreed. If fares are to be pegged to RPI, we will have a big hole in the Business Plan both to 2010 and beyond and we would need to review budgets accordingly.” 31 October-mid November A series of discussions took place during this period where TfL officials sought with the Mayor‟s Office to reconcile the assumptions made in the Business Plan which, as agreed on 24 October, assumed real-term fare increases from 2009 onwards, with the Mayor‟s new expectation that fares would not need to rise by more than RPI. TfL argued that the differences between the approved Business Plan and the Mayor‟s public statements could not be papered over. The Business Plan was not published pending agreement on how this was to be handled. 14 November 2007 Appearing before the London Assembly, the Mayor again said that there was no reason why fares should need to rise by more than RPI over the next four years. 29 November 2007 At a regular meeting with the Mayor and his Advisors, TfL officials were instructed to review the Business Plan to bring it into alignment with the Mayor‟s expectation that fares would not need to rise by more than RPI. TfL did so. 18 December 2007 TfL‟s revised Business Plan is approved by the TfL Board. In the Mayor‟s absence, this meeting is chaired by TfL‟s Vice-Chairman. Paragraph 4.5 of the Plan has been re-written as follows: “The Business Plan is predicated on no real increases in fares through 2009-10. This is in contrast to previous plans which had real fare increases to fund the Investment Programme.” 2 January 2008 TfL publishes its Business Plan. Rape Crisis Centres
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As part of the development of the new Mayor's strategy to address Violence Against Women, an assessment of rape crisis/emergency support services in London will be carried out. That assessment will be complete by the time the draft strategy is published in April 2009. The assessment will look at existing levels of provision and highlight what the gaps may be. A clearer decision can then be made as to the level and nature of any additional rape crisis/emergency support service that is pursued (and the relevant costs). LDA funding for Mayoral priorities As part of the business planning process the LDA Board is considering future LDA budget priorities through the autumn, including sport provision in London. Emerging proposals for consultation were agreed at its Board meeting on 9 October. The consultation document highlights the key themes of the Mayor‟s priorities for the LDA and how these are being taken forward. The Board will develop their strategy alongside the consultation with full programme proposals to be ratified at the Investment Committee on 27 November together with a direction of travel recommendation to the Board.
Yours sincerely
Martin Clarke Executive Director
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