Industry News

London's crowded transport network could face a £1.7bn ($2.7bn) funding hole by 2018 as a result of the recession, the London Assembly will warn on Friday.

The finance gap could force Boris Johnson, London's mayor, to increase fares well above inflation or cancel much-needed Tube improvements, according to a report from the body that holds the mayor to account.

Passenger numbers, particularly on the Tube, fall during recessions as commuters lose their jobs. That in turn hits the income of Transport for London, the capital's transport authority, which depends to a large extent on fares to balance its books.

The assembly's budget and performance committee's report estimates that the loss of income could spiral to £1.7bn by 2018. Its most optimistic scenario is a shortfall of £400m.

Mr Johnson has signalled that he will stick to the fare formula of retail price inflation plus 1 per cent. But likely negative inflation in July would mean that fares would in effect be frozen or even reduced.

The committee estimates that the total fares shortfall will be between £3.2bn and £3.5bn, but the revenue gap will be partially offset by lower inflation costs for the transport network's capital construction programme, offering savings of between £1.8bn and £2.8bn.

John Biggs, the committee's chairman, said: "The gap between expected and actual income can rapidly pass £100m [as Tube passengers fall by 2-3 per cent] and over a business planning cycle can easily exceed £1bn."

Other big funding sources, such as government grants and borrowings, were already fixed, he added, while pressures on the transport budget - from the rising cost of the public-private partnership and the funding deal agreed for Crossrail - lessened TfL's ability to save money elsewhere. TfL's business plan already includes planned efficiency savings of £2.4bn.

The assembly report on transport fares says one of the mayor's options would be to increase fares at a rate significantly higher than inflation, which would undoubtedly be unpopular.

The report says a range of actions is likely to be necessary, including cutting services and deferring or even cancelling planned Tube upgrades and expansions.