January 30, 2012 • 1:31 pm
 
“Londoners will be staggered that the Mayor and TfL also built up a massive £729 million surplus last year which is just sitting in TfL’s bank while fares are rising so steeply.”
 
Ken Livingstone, KenLivingstone.com
 
“Fares are too high and something needs to change. I will cut fares by 7%…”
 
Ken Livingstone, letter to Londoners
 
The stakes have risen in the past few days as London’s landmark event of 2012 gets ever closer.
 
Boris Johnson’s banking sound-bite appeared on rolling news programmes for hours on end last Friday, a few days after Ken Livingstone’s mayoral election promises saw him race ahead into a 2 per cent poll lead.
 
However Channel 4 FactCheck has attacked Mr Livingstone’s recent assertions that he can use a £729 million operating budget surplus at Transport for London (TfL) to cut rail fares by 7 per cent.

The ‘Fare Deal’ has emerged as Mr Livingstone’s signpost policy, yet TfL bosses supposedly argue that the £729 million figure behind his argument doesn’t actually exist.

Channel 4′s FactCheck enticed a passionate response from Left Foot Forward (LFF) - a leading left-wing political blog – in defence of Mr Livingstone.

So can we make sense of the dispute?

Different budgets?

Channel 4′s first grievance was based on Livingstone’s comment from December 2011:

Ken Livingstone: “We will carry out this ‘Fare Deal’ without cutting future investment or hitting services, which are funded by a separate budget.”

Channel 4: “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”.

FactCheck is very critical of Mr Livingstone’s suggestion that the operational and capital budgets are ‘entirely separate’.

TfL sent Full Fact information on the budgets, indicating that both are accounted for under different forecasts. TfL can, however, readily transfer finances between each. They said:

“Whilst there are two separate budgets they do not operate in isolation”

Therefore it depends on how the phrase ‘entirely separate’ is interpreted.

For instance, if the capital budget is running in line with its forecast, and the operational budget is exceeding expectations, there is a choice as to how to spend the operational surplus.

It is then highly subjective as to whether ploughing this surplus back into the operational budget would mean depriving the capital budget of investment.

Channel 4 states the following:

“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 into 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 cut 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.”

Therefore it seems to become a question of priority. TfL’s analysis, and Channel 4′s conclusion, appears to be that any potential funds which it fails to extract from customers is money wasted. Mr Livingstone’s approach appears to be that these funds would be best left in the hands of customers.

So Mr Livingstone’s ‘entirely separate’ comment seems to be slightly misleading. But then so is Channel 4′s comment that ‘there is no separate budget for investment projects’, on the grounds that the capital and operational budgets are in fact two separate budgets that do not operate entirely in isolation, according to TfL.

Left Foot Forward argues that TfL calculations are based on two seperate spreadsheets and therefore have no connection whatsoever. Again, the information provided by TfL suggests otherwise.

£729m?

The question over the size of the TfL surplus is complicated to say the least.

Mr Livingstone has made the claim that the Mayor and TfL built up a £729 million surplus last year which is now sitting in TfL’s bank account while fares are rising steeply.

TfL claims that there is in fact no surplus.

Steve Taylor, Chief Press Officer for TfL, told Full Fact that the £729 million figure, rather than being a surplus, is ‘in fact the amount cut from the TfL budget.’

‘Each year,‘ says Mr Taylor, ‘TfL are required to submit a business plan to the London Assembly. The end of year figures must be compared against this original plan.’

The 2010/11 budget was based on the Spending Review 2007. A TfL press release clarified further:

The Spending Review 2010 came after TfL’s forecast and ruled that TfL must save £2.2 billion over four years. During the course of 2010/11 financial year TfL’s central Government grant was reduced and TfL’s expenditure had to be reduced to meet that cut in funding” .

The £729 million was the amount then cut from the original 2010/11 budget and therefore that figure was shown as ‘unspent’ when it in fact did not exist. In total TfL states that it was now ahead of schedule having saved £800 million.

However, Mr Taylor emphasised to Full Fact that it was not TfL’s place to suggest policy, only to implement directives, and that it would be in Mr Livingstone’s power to direct funds towards reducing rail fares should he choose to do so.

Debt Repayment

While Channel 4′ FactCheck did not cover debt repayment, LFF made an additional claim that TfL were ‘cooking the books’ by choosing to repay debts even though interest rates are low, when it could use the money to cut fares.

Changes in TfL Accounts for FY 2011/12, £ millions (courtesy of LFF’s ‘Cooking the Books’ document.)

 

TfL Business Plan 2011/12 – 2014/5

TfL Budget 2011/12 (Nov 23)

TfL Business Plan Update (Dec 7)

Income

4,067

4,103

4,100

Expenses

(5,693)

(5,563)

(5,563)

Debt repayment

(304)

(289)

(487)

Surplus

(12)

206* Actual first 6 months

(2)

But Mr Taylor argues that the issue is more complicated and paying back the debt made sound financial sense.

“TfL took over Tube Line in 2009 and all of its liabilities,” says Taylor. “As TfL has a AA+ credit rating it made the decision to buy Tube Line debt for £140 million on the basis that it will save £140 million in the long term.”

Mr Taylor reiterated that this was a shrewd business decision which had been negotiated for ‘well over a year’ and was not a case of ‘cooking the books’ as Mr Livingstone’s team had made out.

Conclusion

The claim that there are ‘entirely separate budgets’ can be seen as misleading, but is also a matter of terminology. Two different sources of income within the same company still go into the same pot. But if one enjoys a surplus, the question remains as to whether that can be seen as ‘depriving’ the other of money.

The most important question is whether there is a surplus at all and the £729 million figure appears to be part of an attempt to cut £2.2 billion over four years as instructed by the 2010 Spending Review.

LFF’s claim that TfL has ‘cooked the books’ in spending the surplus on paying off debt is strongly denied by TfL. They claim that it has made a shrewd long term investment to save £140 million. Yet Mr Livingstone’s team argue that this is not a priority.

Channel 4 FactCheck’s assessment of the details of the budgets is more in line with TfL’s information than that of LFF. 

That said, Channel 4 still appear too harsh in their assessment of the ‘entirely separate’ issue and ignore the debt repayments whilst LFF are right to acknowledge the issue of spending being a matter of priority.

So while it is not for us to state what the next London Mayor should or should not do – it appears that Mr Livingstone may have to look beyond the £729 million ‘surplus’ if he wishes to cut fares.

Mr Livingstone’s response

In response to Channel 4′s FactCheck Ken Livingstone told the Guardian:

“In a budget of £8bn if you can’t find the money to have a 7% fares cut, you are breathtakingly incompetent.”

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