Transport for London (TfL) is compelled to identify over £20 million in budget savings over the next year, primarily due to the government’s hike in employers’ National Insurance (NI) contributions.
At a City Hall gathering on Thursday, it was revealed that, although the government has provided substantial backing to public organizations in response to the NI increase, TfL is still grappling with a funding deficit of £23 million.
Sources within TfL have stated that this financial shortfall does not necessitate a workforce reduction, although the precise means of achieving the requisite savings remains uncertain.
The Department for Transport (DfT) has confirmed that TfL will receive an additional £500 million in government support.
Starting in April, the rate of NI contributions payable by employers will increase from 13.8% to 15% for employee earnings exceeding £175. Additionally, the threshold for employers to start paying this tax will drop from £9,100 annually to £5,000.
Chancellor Rachel Reeves has consistently defended her budgetary approach, acknowledging the “challenging decisions” she has made, stating they were in the “national interest.”
In contrast, Neil Garratt, the leader of City Hall Conservatives, voiced on social media that the impact of “Labour’s jobs tax” is adversely affecting TfL.
During the London Assembly’s budget and performance committee meeting, David Bellamy, chief of staff for Mayor Sir Sadiq Khan, conceded that the financial assistance from the government has not met expectations.
While the Metropolitan Police have received full funding to address the NI increase, TfL and the London Fire Commissioner (LFC), which oversees the city’s fire services, have not been afforded the same level of support. The LFC faces a £2.5 million shortfall, which Sir Sadiq has managed by utilizing business rates, but it remains unclear how TfL will address its much larger £23 million deficit.
For the 2024-2025 fiscal year, TfL is operating with a total budget for gross service expenditures amounting to £9.4 billion.
Mr. Bellamy highlighted that there is a recognized issue, noting discussions with the government, which acknowledges that the funding allocation model employed was based largely on a local authority perspective, inherently limited in its revenue sources to council tax and business rates.
He pointed out that TfL generates billions through fare revenue, a factor that was neglected in the government’s funding formula, which could also negatively impact transport authorities nationwide.
Bellamy mentioned that TfL had already made “substantial reductions” in its upcoming budget concerning London Underground staffing, largely due to favorable developments surrounding the pension scheme costs.
He noted that investment performance has allowed TfL to decrease its contributions to staff pensions from approximately 27.3% to 10.5%, which should mitigate the additional £23 million NI expenses.
However, Neil Garratt, in a post on X, stated that “Labour’s jobs tax is hitting TfL hard… The government claimed that they would offset costs for public sector bodies, but that has certainly not been the case for TfL. Business is feeling the brunt of this, and overall costs in London are continuing to rise.”
A representative from TfL mentioned that discussions with the government are ongoing, and they would offer an update on the strategy to manage any budget shortfall as part of their yearly fiscal plan.
The Ministry of Housing, Communities and Local Government has announced an additional £2 billion in grants for local authorities, which includes £502 million to help offset the changes to the employer National Insurance contributions.
“This allocation is part of a broader £69 billion funding initiative for councils across England to support the government’s Plan for Change, which includes a 3.1% increase for the Greater London Authority, elevating its Core Spending Power to £3.2 billion for the forthcoming year,” the department stated.
A spokesperson from the DfT added that the extra funds provided to TfL would yield “positive effects throughout the country, directly sustaining nearly a thousand jobs in Yorkshire and Derbyshire, in addition to supporting numerous others in the broader supply chain.”
