Mind The (Balance-Sheet) Gap: Transport for London is given a rescue package

June 1, 2020

2 min read

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What's going on here?

Sadiq Khan has secured a £1.6bn government rescue package to help Transport for London weather the coronavirus epidemic, but Londoners will have to foot the bill.

What does this mean?

The strain of coronavirus has hit Transport for London hard – really hard. The lockdown has kept 95% of Tube passengers and 85% of bus passengers at home, slashing revenue to a mere tenth of usual income. And with outgoings of £600m a month, TfL desperately needs cash to pay its essential workers. Finally, after weeks of tense negotiation, the government agreed to offer support until September, to the tune of £1.6bn. But for a Labour-led City Hall, there’s no such thing as a free lunch, and Mr Khan had to accept a number of conditions that were hard to swallow. In addition to increasing ticket prices above inflation, the mayor has to hike up the congestion charge (from £11.50 to £15), temporarily forfeit free travel for school children, and restrict it for over-60s. What’s more, the government has demanded representation at board meetings, regular financial reports, and an extensive review of TfL finances.

What's the big picture effect?

Perhaps the most glaring conclusion to be taken from this is that there needs to be a systematic review of how London’s services are run. Khan himself has complained that TfL is so reliant on continuous fare revenue because London is the “only major city in Western Europe” without direct centralised funding for everyday services. He has advocated for permanent government funding, or for giving London more control of its taxes. Devolving responsibilities without devolving resources is proving problematic.

More broadly, this ordeal highlights that very few are immune to the financial distress and threat of bankruptcy sparked by the virus. TfL had set up a reserve of £2.2bn to meet future financial challenges but was just weeks away from filing a notice of public body bankruptcy. Politically motivated or not, TfL was so desperate that its 20-year reign of operational independence from Whitehall was ended – 180 degrees from the government’s previous preference for local control.

Of course, where there’s uncertainty, there are lawyers. For restructuring specialists, the pandemic has been described as something of a “black swan event”. A surge in demand for financial distress advice has inspired law firms, such as Hogan Lovells, to move lawyers from currently quieter departments to restructuring and insolvency teams. At Ashurst, 130 lawyers have been put to work for the receiver and special manager of the Thomas Cook Liquidation. Employment solicitors are also in high demand to advise on redundancy and furloughing employees. 

The near-collapse of TfL is testament to the ruthlessness of this pandemic. The successful law firms of the coronavirus era will be those agile enough to capitalise on this truly unprecedented event.

Report written by Rory Crawford

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