“We will carry out this ‘Fare Deal’ without cutting future investment or hitting services, which are funded by a separate budget.”
Ken Livingstone, pledge to cut public transport fares for Londoners if elected in May, December 2011
Ken Livingstone has been pedalling fast in the mayoral race, overtaking Boris Johnson to claim a 2 per cent lead in the polls.
Although the swing sees the return of 100,000 Labour voters to Mr Livingstone’s camp, the president of YouGov, Peter Kellner, said it has nothing to do with enthusiasm for Labour.
It’s Mr Livingstone’s promise to cut fares on buses and tubes that has lured people back (though it doesn’t help that the “Boris effect” on the Labour vote is waning – YouGov’s poll found that he is “seen as increasingly out of touch”).
But is Mr Livingstone’s proposal to cut fares without hitting services just the ticket? Factcheck investigates.
What’s the fare deal?
Mr Livingstone proposes to cut tube fares by 7 per cent and bus fares by 11 per cent in October 2012. After that he says he’ll freeze fares completely in 2013 and impose no above-inflation rises thereafter. Mr Johnson meanwhile is committed to hiking fares by 2 per cent above inflation each year.
How does he plan to do it?
“Soaring fares are not necessary,” Mr Livingstone claims. He argues that Transport for London (TfL) has a £729m surplus in its operating budget, which is “growing every year” and could absorb fare cuts.
Slashing fares won’t mean there will be less money to invest with or to maintain services, he argues, because that money comes from the capital budget, which is “entirely separate”.
A spokesman for Mr Livingstone told FactCheck: “Ken is committed to a fares cut because many Londoners are struggling with the rising cost of living. The mayor should be doing everything he can to make life easier for them.”
It’s worth remembering that Mr Livingstone admitted in his own autobiography that he has broken election promises on fares twice. Why? Because he’d rather hike fares than cut investment.
TfL’s Chief Finance Officer Stephen Critchley told us there was no operating surplus.
The £729 figure from the 2010/11 accounts is the difference between the operating margin (the difference between operating income, mainly fares revenue, and operating expenditure) that was originally budgeted and the actual outturn for the year.
The reason for the big difference was that TfL had to change its plans to cope with the grant reduction of £108m and prepare for the impact of the October 2010 Spending Review, which reduced the grant by £2.2bn over 4 years. This underspend – which did result from higher operating income and lower operating expenditure than budgeted – was used to offset the loss of £2.2bn funding in an effort to balance the business plan.
Mr Livingstone’s camp however has accused Boris Johnson, as chairman of TfL, of “cooking the books” and hiding this surplus.
Former TfL board member Stephen Glaister, professor of transport and infrastructure at Imperial College, said: “If they (Mr Livingstone’s claims) had any substance they’d be saying TfL is incompetent and profligate in holding money.”
TfL pointed out that its accounts are independently audited by KPMG.
But there is a bit of money sloshing around, isn’t there?
TfL has to cut £2.2bn by 2014/15, which in real terms represents a 21 per cent cut in its central government grant.
Despite having its budget cut, TfL still expects to have a surplus of £40m in 2014/15 because this year’s fare income was ahead of predictions (due to inflation) and spending was slightly below.
Professor Tony Travers, director of the LSE London research centre at the London School of Economics, told FactCheck: “There is no separate budget (for capital spending). A pound can only be used once – rather like a householder given £1,000 – you could blow it on a series of marvellous meals out or you could put it int your mortgage – but you can’t use it again.
“At that level, Ken could say he can cut fares – technically you could ring-fence that and use it for fares – as “extra” money you could argue there’s no less money for investment.”
Any Mayor can cuts fares; but Prof Travers said that put simply, if a pound dropped out of the sky into TfL’s lap, and the Mayor decides to spend it on plugging the hole left by cutting fares, it would hit TfL’s investment projects.
London’s transport system “patently and permanently needs investment. Every additional penny of resources is needed for new signals, track and improved stations,” he said.
When Mr Livingstone left office in 2008, there was well over £1bn in the bank, reserved for investment projects, Prof Travers pointed out.
TfL told us that the £40m surplus projected for 2014/15 would be “ploughed back into investment projects”.
So what about this ‘separate budget’?
TfL insists that the operating budget and the capital budget do not run on an “entirely separate” basis as Mr Livingstone claims.
This can been in TfL’s accounts. TfL’s capital plan clearly states: “Funded by: Operating surplus/(deficit)”.
“They (the operating and capital budgets) are part of an overall budget, and lower fares revenues in the operating budget mean there will be less operating surplus available to fund capital expenditure that appears in the capital budget,” TfL’s CFO Stephen Critchley told us.
Prof Glaister told FactCheck: “They’re right about that. The simple point is that a pound spent on reducing fares is a pound not spent elsewhere. This isn’t magic money.”
TfL argues that if Mr Livingstone was to cut fares by 7 per cent, the move would reduce the income from fares by £1.12bn over this parliament. This money is already factored into the budget and if it disappeared it would have to be taken from somewhere else.
It would be up to the mayor what he where he would plug the gap, but TfL said it would most likely delay the upgrade of certain tube or bus lines.
TfL does hold money in reserve (it has £150m in reserve for emergencies and reserves of £2.2bn – half of which is set aside for the Crossrail project).
Prof Glaister added: “TfL holds reserves for all sorts of reasons – for big capital projects for example, like Crossrail. Or for unexpected events – such as the Hammersmith Flyover repairs. That’s unbudgeted for, I imagine.”
Mr Livingstone is wrong to claim there’s a £729m surplus that’s sitting in the bank, and there is no ‘entirely separate’ budget for investment projects. If he cuts fares, TfL would expect to lose £1.12bn in income from fares – and that’s a hole he wouldn’t be able to plug without hitting the day-to-day funding for London’s transport or taking money from investment projects.
How Mr Livingstone would do that is up to him, but it could mean that tube and bus route upgrades are delayed, or TfL could be forced to shed some staff members.
Any mayoral candidate can raid the TfL’s coffers to cut fares. But cutting fares could mean cutting investment – which London’s transport system has been sorely starved of for decades. Investing money to bring it up to speed only began in earnest under the last Labour government.
And even now, Prof Travers said the system needs “billions and billions more money” to update it. “The underground still has bits of Bakelite signalling – stuff that would easily be more at home in a science museum,” he told us.
One way round it, would be to ask central government for more money, which Mr Livingstone did manage when Labour was in power. Prof Glaister said: “Ken in the past has had success blagging more money out of the government, but getting more from the current government looks entirely unlikely.”
By Emma Thelwell
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