Fact Check fact checked: London’s fares CAN be cut

Channel Four Fact Check assessed Ken Livingstone’s fare deal policy earlier today. Tom Copley sets out how Ken’s policy to cut the fares can be implemented without cutting investment.

Fact Check say:

There is no separate budget for investment projects.

The fact is:

There are two separate budgets at TfL, the operating and capital budgets. Fare cuts only affect the former. The capital budget is treated entirely separately.

Including Crossrail, 95.5 per cent of the investment budget is expected to be sourced from grants, Crossrail contributors, borrowing, asset sales and 3^rd party contributors over the period  2012/11 to 2014/15.

Source: TfL business plan, table 11, p.73 - pdf

Fact Check say:

Mr Livingstone is wrong to claim there’s a £729m surplus.

The fact is:

On 29^th June 2011 TfL reported it had an operating surplus of £727 million in the financial year 2010/11.

This was later revised upwards to £729 million. It is not simply an “underspend”, which implies it will later be spent. There are two sources of the surplus.

The first is that fare revenues continue to be much higher than budgeted for reflecting the effects of persistent above-inflation fares increases. In the last FY this surplus from revenues was £275 million, as shown in the accounts cited below.

The other source was much lower operating expenditure, £453 million lower than forecast. It is important to note that this is operational expenditure, not capital expenditure. Once it is underspent, it remains underspent.

TfL does not use the money to pay more in wages or buy more energy or fuel (or other items), which together form the overwhelming bulk of its operating budget.

Source: TfL board report, p.18, appendix two financial summary - pdf

Fact Check say:

TfL told us that any surplus at the moment is projected, but it would be “ploughed back into investment projects”.

The fact is:

TfL are using some of the operating surplus to pay down debt.

In an organisation the size of TfL it is possible to allocate unexpected surpluses in a number of ways if they are neither used to lower fares nor increase investment. Generally, the surplus could be allocated to cash balances, reserves, or used to pay down debt.

However, under political pressure from Ken’s campaign for lower fare, TfL has clearly been instructed to make a one-off debt repayment as the option, which is wholly unnecessary.

It was even suggested by Boris Johnson’s supporters (which of course includes Daniel Moylan at TfL, a Kensington & Chelsea Tory councillor and deputy chair of TfL) that the position of TfL was comparable to that of the government’s efforts to reduce debt and the deficit, neglecting entirely the fact that the government had a deficit, TfL is generating surpluses.

A separate file on the decision to pay down debt can be found here.

This is not a one-off.

Over the three years of the current mayor’s term the average annual operating surplus at TfL has been £301 million. The policy of two per cent above RPI fare increases while bearing down on operating costs means this surplus will automatically and unnecessarily rise.

This will become more pronounced following the announced fare increases for next year of seven per cent. As TfL continues to bear down on operating costs, the operating surplus will automatically rise and increase further in future years under this policy.

The policy of fares cuts merely prevents the wholly unnecessary ballooning of these surpluses.

It is implied, separately, that that the surplus is used to fund the capital budget. Tony Travers makes the point that the surplus could be used for fares, but that he favours using it for investment. This difference with Ken’s fare policy is an entirely legitimate difference of policy regarding the potential uses of the surplus. But it is clear from his comments that either is possible.

However, under Boris Johnson TfL has neither cut fares nor increased investment.

The £729 million surplus of FY 2010/11 did not lead to increased investment in the current FY. In the TfL business plan for FY 2011/12 the total capital expenditure was set at £1,949 million (p. 73, pdf). On the same comparable capital expenditure basis (that is, excluding Crossrail) TfL now forecasts that capital expenditure will be £1,708 million (p. 19, pdf).

That is, projected capital spending has fallen following a £729 million surplus, not risen to incorporate it.

There is already an unused surplus on the capital budget, as the same board minutes show. There was also an unused surplus on the capital budget, amounting to £273 million including Crossrail, £207 million excluding Crossrail (pdf).

This is under a regime sanctioned by the Mayor where a host of key improvements in the network have been delayed in a wholly misguided attempt to save money. This has led to delayed improvements on the Piccadilly Line and greatly prolonged disruption to refurbishment work at key interchanges such as Victoria Station .

The policy of cutting fares does not in any way dip into TfL reserves. It simply curbs the growth of operating surpluses.

It is nothing short of a scandal that the mayor is not even ensuring the timely application of the capital budget to the necessary improvements in the network. At the same time, the pretence that a fares cut will harm investment is entirely spurious, and serves as a distraction from his own failure to deliver improvements in the network for ordinary Londoners.

See also:

• Ken stays ahead as Boris doubles-down on blaming young people for youth unemployment – Alex Hern, January 23rd 2012

• Biggs: ‘Boris Tunnel’ is four years late and “doesn’t appear to have any funding” – Shamik Das, January 12th 2012

• Boris’s electric vehicle boasts are an inverted pyramid of piffle – Darren Johnson AM, January 10th 2012

• Boris fiddles as London prepares for transport chaos – Alex Hern, October 19th 2011

• Boris’s transport boasts are pure piffle – Rob Jenks, March 31st 2011