“Never let a good crisis go to waste.” — attributed to Winston Churchill
When we updated some cities in the Deloitte City Mobility Index in June 2020, we suspected that a number of urban transport systems could soon face difficult straits. In the case of London, we specifically highlighted the funding challenges, caused by a number of factors, and exacerbated by COVID-19, that could require a fundamental re-think of its business model and finances.
This point was recently echoed in a detailed City Monitor article on transport funding models. Looking at Figure 1, to the right, London stands out for its very high reliance on farebox revenue — far higher than any other major city transport system.
It is still too early to tell what the long-term post-COVID-19 situation will mean for public transport in cities, but it may mean more people will continue to work from home than before, and some form of social distancing could be in effect for some time, resulting in lower passenger numbers. Hence, any municipal transport authority relying too heavily on farebox revenue will want to find ways to diversify its funding streams.
Looking at Paris, New York and Hong Kong, three other large cities with extensive public transport systems covered in the Deloitte City Mobility Index, there are some interesting similarities and differences. All cities depend on farebox revenue to some extent, but some other cities have a wider range of streams to draw from than others.
So, what can London learn from these cities?
Like London, Paris earns revenue through business rates on commercial activities on station land, but to a much greater extent: almost 50 percent. Unlike London, Paris also gets grants from both the central and regional government.
By contrast, New York has a fairly diverse range of funding streams. Though, its transport system has struggled for funding for decades, despite this variety. It gets non-farebox revenue from tolling and some from business rates. Similarly, London also generates some funding from its congestion charging and low-emission zone, and some from business rates. What is notably different is the hypothecated local tax revenue raised in New York — something also used by a number of other US cities.
Hong Kong’s biggest slice comes from its real estate activities, very common in other Asian countries where rail companies own large swathes of land both around stations and along the rail lines, and at depots. The successful development of these holdings helps reduce the reliance on farebox revenue — something Hong Kong experienced, for example, when the SARS and Asian Bird Flu epidemics hit.
So, the question is, can any of these measures work in London? Is it time to restore the central grants? Can a local tax meant to fund transport specifically, similar to the Mayoral Community Infrastructure Levy (used to fund part of Crossrail), be introduced? What about more commercial development of TfL’s land holdings, such as over-station development or some of the train depot sites? There is talk of expanding the congestion zone. However, care will be needed in trying to repurpose such schemes for revenue raising (as the congestion charge was explicitly designed to get people to switch modes).
The pandemic has been hard on the finances of public transport systems around the world and the resulting drop in revenues has been nothing short of catastrophic. Yet, perhaps the silver lining on the whole COVID-19 disruption is this: an opportunity to think the unthinkable and to consider solutions that were previously off the proverbial table. In order to maintain the future viability of one of the world’s top transport systems it may be that some short-term operational pain will aid the system’s long-term financial stability.
You can read more on the options to secure the long-term future of London’s transport network and keep the capital competitive, in London First’s recent report.