The UK government and Transport for London (TfL) have announced a longer-term 20-month funding settlement until March 2024, allowing TfL to commit £3.6bn to capital investment over the period.

In addition to guaranteeing passenger revenue until March 2024 the new package will enable TfL to complete a number of major projects, including the roll-out of new trains for the Piccadilly line and Docklands Light Railway, the Bank station upgrade, and the finalisation of the Elizabeth line.

The deal will also dedicate £80m every year to active travel schemes, expanding walking and cycling infrastructure which will reduce congestion and pollution across the capital. The deal also sees the establishment of an independent property company that will start on 20,000 homes on TfL’s land within 10 years.

As part of the agreement, the government also ensured that London mayor Sadiq Khan agreed to continue work on the introduction of driverless trains on London Underground.

This latest deal provides welcome relief after the long-running saga of last-ditch emergency funding packages to save the capital’s transport network from coming to a grinding halt, and comes after leading industry and business figures had consistently called for a long-term funding settlement to be agreed between the government and TfL.

However, TfL says the new funding settlement, which includes just under £1.2bn of upfront funding and brings government’s total funding to over £6bn, still leaves a funding gap of around £740m across 2022/2023 and 2023/2024. In order to accept the agreement, TfL says it now has to identify a series of measures to balance its budget. 

These include holding its cash balance at £1.2bn, assuming benefit from the inflation mechanism built into the agreement, and the release of contingency from its budget. This, says TfL, leaves a target for further savings of around £90m in 22/23 and £140m in 23/24 beyond the £730m per annum recurring savings programme it has already committed to. 

Announcing the deal, transport secretary Grant Shapps said: “For over two years now we’ve time and again shown our unwavering commitment to London and the transport network it depends on, but we have to be fair to taxpayers across the entire country.

“This deal more than delivers for Londoners and even matches the mayor’s own pre-pandemic spending plans but for this to work, the mayor must follow through on his promises to get TfL back on a steady financial footing, stop relying on government bailouts and take responsibility for his actions. Now is the time to put politics to one side and get on with the job – Londoners depend on it.”

Mayor of London, Sadiq Khan, said: “This funding agreement comes after more than a month of tough negotiations because I’ve been determined to stand up for London and to fight for our transport network, which so many Londoners and businesses rely upon.

“The good news is that we have managed to win a number of key concessions from the government, which mean we will be able to avoid TfL having to make the devastating cuts to vital transport services previously proposed – moving us away from the managed decline of London’s transport network.  

“However, I want to be frank with Londoners - this deal is far from ideal. The government is still leaving TfL with a significant funding gap, meaning we will likely have to increase fares in the future and still proceed with some cuts to bus services. There are also onerous strings attached, such as the government’s condition requiring TfL to come up with options for reform of TfL’s pension scheme at pace, which could well lead to more industrial action and more disruption for commuters. 

“These are things we have had no choice but to accept in order to get the deal over the line to avoid TfL becoming bankrupt, to save the jobs of thousands of transport workers and to keep trains, tubes and buses running across our city.

“The sole cause of TfL’s financial crisis was the impact of the pandemic so it’s simply wrong to punish Londoners and transport workers in this way. Levelling up the country should not be about levelling down London.”  

TfL Commissioner Andy Byford said: “This agreement, which was hard won, means that we can now get on with the job of supporting London’s recovery from the pandemic - to the benefit of the whole country. There is no UK recovery without a London recovery, and no London recovery without a properly funded transport network.

“The support offered by government left an unfunded gap in our budget, which we have been working hard to identify how we will fill. This work has made good progress and we are confident that we will achieve an outcome that allows us to balance our budget and maintain our minimum cash balance. 

“We will need to progress with our plans to further modernise our organisation and make ourselves even more efficient, and we will still face a series of tough choices in the future, but London will move away from the managed decline of the transport network.”

Darren Caplan, chief executive of the Railway Industry Association (RIA), welcomed the deal but said there still needed to be a multi-year settlement. 

He said: “After years of uncertainty rail businesses which renew, enhance and build rail in the capital – whether infrastructure or rolling stock – continue to urge both government and TfL to agree multi-annual deals that last beyond 20 months, more like the five-year control periods on the national rail network. 

“This is the only way to get the best possible value, to the benefit of both fare and tax payers, and to ensure the potential of one of the cleanest forms of public transport really is fully realised in the months and years ahead.

“Whilst this latest announcement is a clear step in the right direction, as passenger numbers continue to grow and existing capacity fills up, national and London policy-makers must set the right level of ambition now and invest longer-term in the future of the capital’s transport network."