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The Mayor of London The London Assembly

The economic impacts under future funding scenarios for TfL

A joint report by Transport for London and GLA Economics sets out how reductions in service levels and capital investment could affect Londoners’ welfare as a result of a shortfall in TfL’s funding. The analysis details transport user disbenefits, wider economic impacts, and the monetary cost of additional CO2 emissions that would occur should TfL have to resort to a ‘Managed Decline’ scenario. These effects are assessed against a ‘Financially Constrained’ scenario, which already reflects service-level and capital investment reductions compared to the pre-pandemic policy ambitions.


The year following the onset of the pandemic saw passenger numbers on London’s public transport network fall by nearly 90%, as commuters and visitors were forced to stay at home. Successive lockdowns and reduced demand for travel decimated TfL’s revenue from fares income and its financial position leading to a funding crisis. Like other rail operators, TfL needed a subsidy from government to keep services running through the pandemic. Almost two years on, passenger numbers have only partially recovered, and latest data shows how demand is still 30% below pre-pandemic levels.[1] Long-term funding solutions are needed urgently to address the shortfall, with negotiations between the Department for Transport and the Mayor of London ongoing. In accordance with its budget requirements, TfL has had to plan for a ‘Managed Decline’ scenario with significantly reduced service levels and capital investment. The analysis by TfL and GLA Economics assesses the economic impact of this funding scenario,[2] estimating the economic welfare loss to Londoners in the next ten years to be over £12bn in present value terms.[3]

The importance of transport to Londons economy

London’s public transport network has played a key part in underpinning its economic success over the last century and its emergence as a global city. It has helped to support ‘agglomeration economies’ – the productivity benefits that occur when a high number of businesses co-locate at a particular location and gain a number of advantages (such as economies of scale, lower transaction costs, skills matching, knowledge spillovers) from proximity to their suppliers, customers, labour markets and even competitors.[4] Continued investment and expansion of the network has consolidated these economic benefits whilst also facilitating economic inclusion, providing a relatively low cost means for people to access the labour market and vital public services like healthcare and education.

However, the evolution of the network has not been one of continual improvement, with periods of underinvestment and decline. Notably so in the mid-1980s when bus routes were forced into short running due to staff shortages, passengers waited in long queues to collect pasteboard tickets from coin-operated payment systems, and platforms and trains were strewn with graffiti and litter. There was no Overground, no Oyster card system, and no DLR or Jubilee line extension. This was a decade when living in London was unappealing to many with population reaching a low point having declined steadily since the 1950s.

Thirty years on, the neglected state of the network and the low esteem in which it, and by extension London, was held in the 1980s is a distant memory. The improvement in London’s transport system since the 1980s, and particularly since TfL was established in 2000, has been considerable. As an illustration, between 2003/04, when London Underground was brought under TfL’s control, and 2018/19, the last full financial year before the pandemic, annual passenger journeys on the tube increased by 42% from 948 million to 1,385 million. Over the same period, annual passenger journeys on London buses increased by 30% from 1,702 million to 2,220 million.[5]

Future funding scenarios

If adequate and long-term support is provided, TfL could maintain recent levels of progress on enhancements, while meeting the basic long-term need to keep assets in a stable condition. However, without it the network could once again fall into a state of decline because of the drop in travel volumes on the network compared to pre-pandemic levels. TfL has already been forced to operate within, and plan for, a ‘Financially Constrained’ scenario. This means it is currently unable to meet the national and regional policy ambitions set out in the Mayor’s Transport Strategy, despite the deferral of major schemes such as the Bakerloo line extension and Crossrail 2 into the 2030s and 2040s respectively.

Without the provision of appropriate financial assistance, TfL will be forced to make even deeper cuts to services and capital investment, in what would amount to a ‘Managed Decline’ scenario. In this scenario, the considerable progress achieved would be gradually undone and TfL would be forced to retrench activities to focus almost exclusively on maintaining existing assets in a safe and operable state.  Public transport users would experience an immediate impact, with an 18% reduction in bus services and a 9% reduction in London Underground services.[6] Furthermore, by severely constraining future capital investment, there would be a gradual but significant decline in the reliability of public transport services due to cancelled train fleet renewals, and deferred road infrastructure repairs leading to greater disruption and gridlock.

London would be likely to experience a car-led recovery with all the negative consequences that would entail for carbon emissions, air quality, risks to road users, congestion and other negative effects on the city’s economy and quality of life. The wider economy would be impacted through reduced mobility and productivity and the deterioration of connectivity between businesses and markets.

Such effects would directly work against the need to encourage passengers to return to public transport and support a vibrant office environment in central London. This is essential not only to support the London economy and TfL’s finances but also to the UK’s fiscal position – with London providing an annual surplus of £36.2bn in tax revenue for the exchequer, in major part through jobs located in the Central Activity Zone.[7]

The economic impact of Managed Decline

In order to estimate the economic impact of the Managed Decline scenario, the assumptions made in the funding scenarios were run through TfL’s transport models with the incremental impacts of moving from ‘Financially Constrained’ to ‘Managed Decline’ estimated and then monetised. The three main impacts included in the analysis were: i) direct impacts on transport users (both business and non-business); ii) wider economic impacts including agglomeration impacts; and iii) carbon emission impacts. Each element is discussed in turn below. All the scenarios were modelled on, or adjusted on the basis of, TfL’s ‘Hybrid’ future year demand forecast. This demand forecast accounts for long-term travel behaviour changes resulting from the pandemic, so that demand, while still growing over time, is assumed to be somewhat below pre-pandemic projections.

Direct impacts on transport users

The modelling suggests that as early as 2023, an immediate, severe reduction in service levels would take place on all public means of transport, from buses to surface and underground railways. Based on the value of time of public transport users, welfare losses to passengers due to increased waiting time would sum to £4.7bn over ten years in present value terms. The welfare loss does not take into account the potential overcrowding of services, nor the knock-on impact of increases in congestion on the highway network as a result of a shift away from sustainable modes.

Similarly, a contraction in capital investment would result in the gradual deterioration of infrastructure and delays, estimated to lead to a total welfare loss of £2.6bn to passengers by 2031. What is more, even if the ‘Managed Decline’ scenario were only to be pursued for a relatively short number of years, it would be extremely challenging to regain the levels of benefits provided by London’s transport system today. This is because the shortfall of funding in the preceding years would create a backlog of urgent repairs, renewals and upgrades that would drive considerable additional costs and inefficiencies. Total welfare impacts on transport users due to reductions in service levels and capital investment are therefore estimated to be £7.3bn over the ten-year appraisal period in present value terms.

Wider Economic Impacts

Within welfare analysis, economic impacts are primarily captured by the estimation of user benefits or disbenefits, for example, as a result of time savings or delays. However, additional benefits (or disbenefits) will arise as the impact of transport improvements is transmitted into the wider economy. These are termed wider economic impacts and can be significant, arising in a number of ways. They include productivity gains resulting from improvements in how well businesses are connected to each other as well as potential employees, and benefits arising from structural changes as businesses and households relocate.

TfL undertook an indicative assessment of the wider economic impacts using dynamic land use interaction modelling to assess the scale of the wider impacts associated with degrading London’s transport network. The resulting economic welfare loss of moving to the ‘Managed Decline’ scenario would total £4.5bn over ten years in present value terms, comparable to the loss from service reductions.

Carbon impacts

TfL also modelled the increases in carbon emissions that could arise from being unable to implement the decarbonisation (and other) policies in the Mayor’s Transport Strategy. The ‘Managed Decline’ scenario will cause a nearly three-fold increase in the yearly emissions from TfL operations compared to the ‘Financially Constrained’ scenario in 2030, a gap deemed to widen even further in the following years. When accounting for emissions from private road transport in London, the difference in total emissions reaches nearly 10% in 2030. Following the latest government guidance,[8] a monetary value was assigned to the additional carbon emissions arising from a move from the ‘Financially Constrained’ scenario to ‘Managed Decline’. The welfare loss of the additional carbon emissions is estimated to be £0.8bn over 20 years in present value terms, or £0.3bn when analysed over a shorter ten-year time horizon.

Total economic impacts over time

The total economic welfare impacts to London from moving from a ‘Financially Constrained’ to a ‘Managed Decline’ scenario could be over £12bn over ten years in present value terms when transport user disbenefits, wider economic impacts and carbon impacts are included. Figure A1 shows the time profile of economic welfare impacts (undiscounted) when moving from the ‘Financially Constrained’ to the ‘Managed Decline’ scenario.

 Figure A1: Stacked time profile of undiscounted impacts of moving from the ‘Financially Constrained’ to the ‘Managed Decline’ scenario by category of impacts

Stacked time profile of undiscounted impacts of moving from the ‘Financially Constrained’ to the ‘Managed Decline’ scenario by category of impacts

The immediate loss of benefits is associated with service level reductions that tend to dominate the total loss of benefits until the mid-2020s, although the other impacts ramp up quickly and by 2025 onwards the total loss of benefits from reduced capital expenditure and the (associated) loss of wider economic benefits exceeds the loss of benefits from service level reductions. By 2041, the loss of benefits from investment in capital expenditure and loss of wider economic benefits dwarf the loss from service-level reductions with an annual undiscounted impact of more than £4bn per annum.

Other impacts

The benefits of avoiding ‘Managed Decline’ are likely to extend beyond what is quantified in the analysis above. For example, transport investments are critical to unlocking sites for housing development and generate significant uplift in land values. Compared to a ‘Financially Constrained’ scenario, a ‘Managed Decline’ scenario would deliver 37,000 fewer homes by 2026, rising up to 105,000 by 2031 – due to lack of transport investment that could unlock sites for housing development. The reduction is associated with an indicative loss in land value uplift of £6-9bn.[9]

Furthermore, an affordable and reliable public transport network is essential for providing disadvantaged households with connectivity and opportunities. The reduction in services resulting from the lack of appropriate funding would make the public transport network less inclusive, with the burden falling disproportionately on disadvantaged groups. The clearest example of this is in the likely impacts on the bus network. 59% overall of Londoners travelled by bus at least once a week pre-pandemic, and these figures were higher for people on low incomes and all protected characteristics (as set out in the Equality Act, such as race) for which TfL has data, except people who are disabled.[10] Buses are crucial in providing connectivity (for example children getting to school, and residents to local amenities) and capacity, particularly on thousands of links where there often isn’t a rail alternative.

Under the ‘Managed Decline’ scenario, part of the resulting 18% service level cuts could entail the withdrawal of over 100 routes. Lower capital expenditure would directly impact the accessibility of the public transport network to disabled Londoners, 84% of whom report that their disability limits their ability to travel. TfL’s work to increase the proportion of its network that can be accessed step-free would completely cease, while reduced renewals would result in a higher frequency of the lift and escalator failures that can often prevent those who depend on them from travelling at all. Reducing public transport service in a way that increases crowding beyond tolerable levels would also disproportionately affect those with disabilities or elevated vulnerability to viral infection.

Comparing total impacts and the funding requirement

The additional funding required up to the financial year 2031/32 in the ‘Financially Constrained’ scenario over the ‘Managed Decline’ scenario is estimated by TfL to be £6.9bn in present value terms. Based on this high-level analysis and over the period to 2031, economic welfare losses including wider economic impacts and carbon impacts are estimated to exceed the funding requirement by £5.2bn and the indicative Benefit-Cost Ratio is 1.75.[11]

Unless funding is restored, the disbenefits from reduced capital expenditure (and hence net losses of economic welfare) are expected to rapidly increase over a longer time horizon (as shown in Figure A1). This assessment considers only economic impacts that can be modelled at this stage, and there would be significant further benefits in areas such as housing delivery and avoiding risks to London’s competitiveness, so this estimated value for money benchmark should be regarded as conservative.

A copy of the report is available online: The economic impacts under future funding scenarios for TfL.

[1] Comparison of latest published data from Oct/Nov 2021 with data from Oct/Nov 2019. See the London Datastore, Public Transport Journeys by Type of Transport. More up-to-date data for TfL bus and tube journeys only shows a further decrease in demand due to the Plan B announcements – see TfL Network Oyster and Contactless card payments data.

[2] See TfL and GLA Economics, The economic impacts under future funding scenarios for TfL, 13 December 2021.

[3] All monetary figures are in 2019 prices, in 2021 present value, real terms, unless indicated otherwise.

[4] See for example Graham, D. & Gibbons, S. (2018). ‘Quantifying Wider Economic Impacts of Agglomeration for Transport Appraisal: Existing Evidence and Future Directions’, May 2018, and Graham, D. (2007). “Agglomeration, productivity and transport investment.” Journal of transport economics and policy (JTEP) 41.3: 317-343.

[5] See TfL Annual Report 2003 – 2004 and the London Datastore, Public Transport Journeys by Type of Transport.

[6] See TfL (2021) ‘TfL Submission to the GLA Budget‘.

[7] ONS. 2020. Country and regional public sector finances: financial year ending 2020.

[8] See BEIS, Valuation of greenhouse gas emissions: for policy appraisal and evaluation, 2 September 2021.

[9] These figures are so large because transport is crucial to unlocking sites in London and TfL’s contributions to transport improvements are often match funded by developers, leading to an oversized economic impact. Substantial potential contributions from developers and other stakeholders will be lost if TfL is unable to commit to its share of scheme funding.

[10] See TfL and Mayor of London, Travel in London: Understanding our diverse communities

[11] The Benefit-Cost Ratio represents the value of averted losses that would result from receiving appropriate funding (ie. avoiding a ‘Managed Decline’) as a share of the total funding costs.