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08.12.16

‘Flabby’ TfL seeks 2020 cash surplus in most ambitious business plan to date

Transport for London (TfL) will only achieve its proposed financial targets if it implements a wide-scale cost reduction programme in full, it has revealed in its new five-year business plan – promised to be the organisation’s “most ambitious to date”.

The plan, which focuses primarily on how the organisation will move from a position of soaring operating costs to break-even, outlined how TfL will need to become significantly leaner and more cost-effective. If successful, the plan will “transform TfL”, its CFO Ian Nunn promised. In total, the organisation will seek around £800m in yearly efficiency savings by 2020-21 without affecting frontline services.

London mayor Sadiq Khan said in a statement: “The previous mayor refused to do it, but in reorganising a flabby TfL and finding major efficiency savings within the organisation, we’re securing this record investment without burdening Londoners with further hikes in TfL fares. 

“Our plans over the next five years include modernising major Underground stations, bringing forward plans to extend the Bakerloo Line, and investing record amounts in cycling and cleaning up London’s air. The greatest city in the world must also have a genuinely world-class transport system, and this is vital for the future success of London’s economy.”

He then added in the business plan’s introduction: “We need TfL to be good at delivering projects on time and to budget, at finding new sources of finance, at generating new revenue streams and at helping Londoners make the shift to greener, safer, more sustainable forms of transport such as walking and cycling.

“These are already TfL’s strengths, but we want to play to them with greater ambition and urgency.”

In his foreword to the report, transport commissioner Mike Brown – who expressed disappointment at the transport secretary’s recent decision to scrap London rail devolution plans – said that while TfL’s operating costs have risen year-on-year historically, it has reversed this trend over the last six months.

“Our operating costs have stabilised and are now falling. In the long term, we plan to hold costs broadly stable at this level, while delivering the modernisation and new transport capacity London needs. This will include opening the Elizabeth line and delivering vital upgrades on the London Underground,” he wrote.

Brown added that TfL is taking a “fundamentally different approach” to raising other income, such as “ambitious” plans for using its land and retail estate and delivering new homes, as well as taking advantage of its huge advertising estate “by investing in a new generation of digital assets”.

However, at the heart of the business plan lies the need to make major efficiencies, which Brown branded the “biggest overhaul” yet of the organisation. These will take place through a “wholesale review” of every element of TfL’s operations, including by merging functions; reducing management layers; driving down costs in areas that support its operational business; having less reliance on agency staff; negotiating better deals with suppliers; and adopting “sensible and considered value engineering” in major projects.

In 2016-17, overall sources of funding, excluding Crossrail construction, are projected to amount to £8.6bn, with almost £5bn of this coming from fares. In 2021-22, TfL hopes to raise over £10bn in funding, with over £6bn of this hailing from fares (including Crossrail services).

“Our core financial objective is to achieve break-even on the operating account – the income and costs of our day-to-day operations,” the business plan said.

“Our first milestone is to create a financial surplus in 2020-21, having accounted for the annual cost of capital renewals. Our second is to reach the point where the total cost of day-to-day operations, including the costs of financing, are fully covered by income. We aim to do this in 2021-22, after the second full year of operating the Elizabeth line.”

Achieving these objectives will necessarily rely on implementing the entire cost reduction programme and on growing passenger numbers, such as by making public transport more affordable and accessible.

In the short term, TfL will seek to boost the use of public transport by attracting customers back to buses; in the medium term, it will rely on the success of the Elizabeth Line.

“To become the modern and efficient organisation that a rapidly growing London needs, we have begun a complete review of our business and ways of working,” the document added. “We are addressing unnecessary duplication, reducing management layers, and driving down the cost of what we buy from third parties.”

Savings through suppliers, operations and behaviour

As part of its comprehensive review of the organisation, TfL has already identified areas where costs can be slashed without affecting day-to-day services, safety or the capital programme.

The headline solution is achieving better value from the supply chain by improving procurement, renegotiating contracts and “continually challenging” the standards and scope of specified works. TfL also expects to make substantial savings across current contracts through rationalisation, consolidation and improved contract management.

Further commercial opportunities will exist over the next five years, such as through consolidating facilities management contracts; exiting expensive legacy PFI and PPP contracts; consolidating its head office accommodation; bringing together functional teams that have previously been dispersed across TfL, such as engineering and capital delivery; and “forensically examining” a huge range of supplier contracts that add up to almost 70% of TfL’s total cost. All these areas potentially offer around £2bn in savings.

TfL is also re-evaluating every area of its business to consider which functions could be merged, or where excessive management layers and duplication could be tackled. This redesigned operating model could deliver £2bn in savings.

Lastly, its transformation programme will seek to create a culture and ways of working that supports a “single, integrated organisation that is commercially-minded and agile”.

“We cannot allow costs to creep back upwards; we must drive revenue up and continue to keep costs down. This is the beginning of a culture change programme that will instil a more commercial mind-set, develop more collaborative ways of working and encourage greater innovation and creativity,” the plan argued.

Despite its confidence in the proposed efficiencies, which the mayor ensured can be delivered, TfL’s business plan was still unclear over the potential impact of Brexit and other major transport decisions, such as building a third runway at Heathrow.

Its CFO said Brexit has created a “climate of some uncertainty” and TfL is still in the early stages of discovering what it will actually mean. While it is taking every possible step to monitor the implications of the vote, it is “still too early” to respond to any risks or opportunities that might emerge.

Comments

Geoff Armand Louis Demprunt   08/12/2016 at 16:28

Perhaps , if the PM and Parliament haven't lost confidence in the Transprt Srcretary by the Epiphany, TfL or a Passenger Group could Judicially Review the decision. There's surely nothing to stop an Arbitrator to be appointed to vet proposed additional schemes on a devolved enlarged network by external organisations, the on,y criticism of London Overground is its always reacting to events. If they are making a 4:1 benefit by increasing services this could be transferred to adding new routes.

Jerry Alderson   09/12/2016 at 14:21

Statements by politicians and organisations are always interesting for what they do NOT say. Lots of comments about the supply chain but the elephant in the room is TfL's own staffing costs. Not a word said about operating with fewer LUL staff or no longer giving the above-inflation pay rises. That's the reality is the objectives are to be achieved.

Jerry Alderson (Fix Typo On Previous)   09/12/2016 at 14:22

Meant to type: "Not a word said about operating with fewer LUL staff or no longer giving them above-inflation pay rises. That's the reality if the objectives are to be achieved."

Bt   14/12/2016 at 14:08

We are a Danish company that has a product for subway tunnel advertising that can generate huge revenue for the City of London, the TfL and also Exterion Media. The system is a safe, secure and reliable system patented in the UK, and in short it works by projecting media using video projectors onto the subway walls surrounding the subway train. Please see a short 3D video below to get a quick overview. https://www.youtube.com/watch?v=uc6ZaXytDtc A test performed with TL (Transport for Lausanne) https://www.youtube.com/watch?v=lBskg0KWe_U The system allows for the use of the entire stretch of subway tunnel to be used, and does not create any traffic delays when being installed, used, or maintained as it all can be done when train is not in traffic and no work is required in the tunnels. the revenue of the system is very similar to the projection system that is used to project cross the platform (XTP) on the stations, rather it is installed on the train and follows the passengers into the tunnel. The XTP system is currently to our knowledge based on 6 projection per station, but each train set of 10 train cars can carry 30 of our projection units so one can quickly imagine that our system would generate several millions of Pounds each year – based on the revenue extracted from the data on the XTP’s that are used on the stations. Allows me to emphasize that our system due to the vast amount of minutes will generate huge amount of revenue for the TfL and in taxes to the city and further since the advertising time can be sold based on location, time & destination of the train it will impact the local business on the proximity of each station as they can by small quantities of advertising time they can afford, based on their location and business time which allows them to advertise without having to pay +5,000GBP for an overall outdoor advertising that is quite likely not only outside their areas of business but also outside their advertising budget and needs. We would like to offer this technology for cooperation with Exterion Media, but have sent the several mails as well as meeting with their Their business development chief in US without sign of interest. We are a technology provider and work in the field of new technology and patents. We believe that it’s a great waste of revenue for The City of London, For an example will our system create 32 million minutes of advertising using one-sixth of the potential of the Piccadilly Line. Even if the minutes are bought by SMB’s and local shops at 0.25£ each minute, it would result 8 million pounds of revenue from the utilization of a 6th of that metro Line alone.

Bt   14/12/2016 at 14:27

It's technology like the Echo Light System for subway advertising that will keep public transportation affordable while serving the community and allowing local shops to grow. Objectively speaking I can't understand the lack of interest from the TfL nor their advertising partners as this is solely beneficial to all parties. For more information on the Echo Loght System please see Www.theonetimes.com

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