Funding will be used for further infrastructure renewals

 
The government has announced the appointment of two government special representatives to attend the Transport for London board and the terms of reference for a review of TfL’s future financial position and structure.

It will see Andrew Gilligan and Clare Moriarty attend the TfL board as well as the organisation’s finance and programme investment committees.

Moriarty is a former civil servant and has been permanent secretary for the Department for Exiting the European Union and for the Department for Environment, Food and Rural Affairs, and she was previously director general, Rail Executive and director general for corporate services in the Department for Transport.

Gilligan advises the prime minister Boris Johnson on transport matters and worked closely with TfL for three years, acquiring detailed knowledge of its operations, as former cycling commissioner for London.

“These positions required a specific skillset and have therefore been made through direct ministerial appointment,” transport secretary Grant Shapps told MPs.

Meanwhile, the government has provided more insight into its planned review of TfL’s finances and structure, a condition of the £1.6bn government bailout announced in May. It will be led by the DfT with significant input from external advisors, Gilligan and Moriarty and TfL.

London mayor Sadiq Khan and TfL have been consulted on the terms of reference and will provide views and options into the review. TfL will provide information as reasonably requested by DfT and external advisors.

The review team will report to Shapps with oversight from prime minister Boris Johnson and the chancellor Rishi Sunak. Regular updates will be provided to Shapps and Sunak as the review progresses. The review team will also produce a written report suitable for publication if ministers are minded to do so.

Inputs to the review will include:

  • Financial modelling of multiple COVID-19 recovery scenarios against TfL budget for remainder of Business Plan period. DfT, TfL and external advisors will work together to agree the parameters of these scenarios, recognising the high levels of uncertainty;
  • Review of TfL obligations and functions, including statutory and contractual;
  • Review of current operating model and alternative potential models, and assessment of financial sustainability of TfL’s current model pre-COVID-19;
  • Summary of all current and planned capital spending;
  • Review of the balance sheet and financing structure, including financing policy, of TfL;
  • Review of the current fiscal support arrangements and income streams;
  • Review of international and cross modal benchmarks in considering all of the above, and comparison of TfL to these, in particular for operating models (comparison to include commentary on mitigating factors, such as levels of public funding); and
  • Financial assessment of the relative impact of different options on financial forecasts.

There will be three levels to the review and each level will build upon the results of the preceding stages.

It will report with detailed options to Shapps of the choices that could be made to achieve the aims of the review, and deliverability implications of these choices.

The review will consider impacts of the options presented on wider government objectives, including maximising housing supply. While Crossrail is out of scope of the review, it will be considered through other commitments made in the agreement.

Changes to the government’s tax or spending plans are not part of the scope of this review, although the government will consider evidence from the review as appropriate.

Level 1

Evidence and clear understanding of TfL’s current financial position.

To include:

  1. Review of TfL’s current obligations and functions, including statutory and contractual; and
  2. Review of the current income streams and commentary of how these have been impacted by the COVID-19 pandemic.

Level 2
Evidence and options to strengthen TfL’s financial position over the remainder of the current (2020/21) and next financial year (2021/22).

To include:

  1. Development and assessment of options for short-term revenue maximisation and assessment of the potential for raising more non-fare based revenue and commercial income, including TfL’s housing development pipeline;
  2. Identification of opportunities to deliver further efficiencies in the short term in relation to operating costs; and
  3. Review of the approach to prioritising capital spending, including but not limited to asset maintenance and enhancement for rolling stock, network infrastructure and TfL estate.

Level 3
Evidence and options for more fundamental changes that could put TfL in a fully sustainable financial position by the end of the current business plan period (2024/25).

To include:

  1. Development and assessment of medium-term options, and identification of potential longer-term options, for revenue maximisation and assessment of the potential for raising more fare and non-fare based income, including TfL’s housing development pipeline, revenue yield choices over time, and changes to road user charging schemes as foreshadowed in the Mayor’s Transport Strategy and further measures;
  2. The identification of opportunities to deliver further efficiencies in the medium term in relation to operating costs, including but not limited to, workforce modernisation, and exploring the feasibility of extending driverless operation from the DLR to other lines which are already automatic;
  3. Review of the approach to prioritising capital spending for the remainder of the business plan period and to evaluate long-term sustainability, including, but not limited to, asset maintenance and enhancement for existing and future rolling stock, network infrastructure and TfL estate;
  4. Review of the current operating model and whether there are any opportunities that alternative operating models could bring over the longer term, including consideration of structures and governance;
  5. Review of the balance sheet and financing structure of TfL, including financing policy, debt sustainability, cash reserves, rating agency engagement, and CapEx vs OpEx choices.

The review will be completed by end of August 2020 to inform the position after the support period of the agreement (which ends in October).

 
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