Londoners are expected to face a massive tax raid as Sadiq Khan scrambles to protect the city’s transport network from a long-term plunge in commuting.
Demand for buses, underground and rail services will never return to pre-pandemic levels, according to a bleak report from credit agency Moody’s – a trend that risks crippling the finances of tube operator Transport for London (TfL).
Analysts have predicted that passenger numbers will permanently fall by a fifth as the pandemic changes travel habits forever and legions of commuters embrace home working. A leading transport academic said that Mr Khan, who is mayor of London and TfL’s chairman, is most likely to impose new taxes to fill the hole.
Meanwhile London’s transport commissioner Andy Byford said that relying on fare income to fund the capital’s public transport is “not sustainable”.
TfL will be hit far worse financially from the change than its peers in New York, Paris and Vancouver, Moody’s said. The London authority is forecast to lose more than 12pc of its operating revenue. This compares with revenue falls of less than 8pc across the other three cities, despite a similar drop in passenger numbers.
Bosses at TfL are locked in talks with the Government over a long-term bailout deal worth £15.8bn. Ministers have already handed out more than £3bn to keep services running in the capital over the last year.
Sadiq Khan has threatened to charge drivers up to £5.50 a day to enter Greater London to plug the shortfall unless he is given permission to retain road tax collected in the capital. Both options have been rejected by Transport Secretary Grant Shapps, who said earlier this year: “I don’t think he can simply raid the national budget.”
With City Hall and Westminster unable to agree a deal before a pre-election communications blackout began last week, Mr Shapps offered a seven-week extension to the current central Government funding that runs out on Mar 31.
Mr Khan, the odds-on favourite to be re-elected for another four years in May, regularly clashed with Boris Johnson over the parlous state of TfL’s finances last year. The Prime Minister said Mr Khan had bankrupted TfL’s finances. In response, the mayor – who froze fares for four years from 2016 – said Mr Johnson’s remarks were a “blatant lie”.
Tony Travers from the London School of Economics outlined a number of options to put TfL back on firmer financial footing. He said: “The most likely is some kind of permanent tax fix that would need to be found.”
Mr Travers said that another option is a substantial cut to services, but added that cutting public transport would be at odds with the Government’s climate change commitments to reduce car use. A third option to increase fares more steeply would also be at odds with the country’s green ambitions.
Mr Johnson is under pressure from his own party not to bow to Mr Khan’s bailout requests amid concerns that handing subsidies to London will undermine his pledge to level up the economy.
TfL is more vulnerable to a fall in passenger numbers compared with its overseas counterparts because of its dependency on fare income. More than 70pc of the authority’s costs typically come from fares. This compares to around 35pc in New York and Paris, which fund services through local taxes and central budgets.
Mr Byford warned last summer that long-term funding from taxpayers outside of London will be required to wean the capital’s public transport network off its dependence on fares. On Monday he added: “The last year has shown that TfL’s current reliance on fares revenue as a primary source of income is just not sustainable and needs to be fundamentally changed to drive a robust recovery and thriving future.
“An effective transport network, investing for the future, is absolutely critical to the safe and successful recovery from the pandemic of London and the UK as a whole.”
Moody’s predicted that passenger numbers will be 40pc lower than pre-pandemic levels in the current fiscal year and will settle 20pc lower permanently.
Analyst Zoe Jankel said: “The shift to remote working, coupled with the increased use of online leisure and retail services, will lower demand and permanently reduce fare revenues.”