Budget Committee report to the London Assembly




НазваниеBudget Committee report to the London Assembly
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Budget Committee report
to the London Assembly



Transport budget plans
for 2004/05


Transport budget plans for 2004/05


A. Background


1. The Budget Committee met on 4 February to consider the revised TfL budget forecasts for 2003/04 and their knock-on effect for TfL’s 2004/05 budget plans. The Committee was first informed about the revised forecasts by the publication of:

  • The Mayor’s Draft Budget, which was issued in January and showed substantial changes to TfL’s plans from the Mayor’s Consultation Budget, which was issued in December and also from the TfL Business Plan, which was issued in October

  • January TfL Finance Committee papers showing a larger than previously expected forecast underspend for TfL in 2003/04.



2. The Assembly will consider the Mayor’s third and final set of budget proposals, the Final Draft Budget, at its 18 February meeting. The Final Draft Budget proposals for TfL match the Draft Budget proposals (considered by the Assembly on 28 January) and so this paper aims to inform the Assembly of the main changes made to TfL’s plans over the course of the budget process.


3. The TfL Business Plan and the Mayor’s Consultation and Draft Budget proposals are available from the GLA website:

  • The TfL Business Plan was presented to the Assembly’s Transport Committee at its 13 November meeting:

http://www.london.gov.uk/assembly/transport/2003/transpnov13/transpnov13agenda.jsp

  • The Mayor’s Consultation Budget was presented to this Committee at its 18 December meeting:

http://www.london.gov.uk/assembly/budgmtgs/2003/buddec18/buddec18agenda.jsp



4. Two papers presented to the 27 January meeting of the TfL Finance Committee are appended to this report for information purposes:

  • At Appendix A, on pages 9 to 21, Progress against Budget: 3rd quarter 2003/04

  • At Appendix B, on pages 22 to 29, Update on Spending Review 2004.



5. This report examines:

  • Presentation of the proposals (sub-section B)

  • Forecast underspend and movements in reserves (sub-section C, sub-sections D and E cover non-London Underground and London Underground underspend)

  • Income from bus fares (sub-section F)

  • Risks and opportunities (sub-section G)

  • Spending Review 2004 (sub-section H).



B. TfL’s presentation of its proposals


6. TfL’s Business Plan for 2004/05 to 2009/10 was issued in October and was split between baseline expenditure (essential safety work and committed expenditure, net of efficiencies) and expenditure beyond the baseline, categorised as1:

  • Restoration of bus service levels

  • Ensuring the system runs smoothly (state of good repair and other safety expenditure)

  • Meeting increased demand for existing services

  • Accommodating London’s growth

  • Service quality enhancements.


7. The Mayor’s Consultation Budget followed in December and his Draft Budget in January, both presented in service analysis format – a more familiar approach.


8. We understand that the TfL Business Plan fulfils a slightly different role from the Mayor’s formal budget proposals in terms of the way it presents TfL’s plans and that the latest edition has a particular purpose, in that it aims to highlight TfL’s increased funding requirement for 2005/06 and beyond. However we have found it frustrating that the Plan contains:

  • No forecast of the current year, 2003/04, outturn – this is a change to previous TfL practice and makes it harder to assess future plans

  • No easy read-across of figures from the Plan to the documents containing the Mayor’s formal budget proposals – for example it has not proved easy to track through the proposed spending on bus priority measures.


9. TfL’s Chief Finance Office told the Committee at its 4 February meeting that:

I do acknowledge that it does not make it easy for you to go from the Draft Budget and draw down into the Business Plan, and I think we should look at that for the future to make it easier for you to pick that up.


10. We recommend that TfL changes the presentation of its future Business Plans, so that current year forecast outturns are included and so that there is an easy link to the service analyses presented in Mayoral budget proposals.


C. Forecast underspend and movements in reserves


11. As the tables below show, TfL’s levels of net service expenditure in 2003/04 and 2004/05 and the planned transfers to TfL reserves in 2003/04 and the planned transfer from TfL reserves differ substantially between the Mayor’s Consultation and Draft Budgets for 2004/05.


TfL net service expenditure

Forecast for 2003/04, £m

Proposal for 2004/05, £m

%
increase


2Consultation Budget

2,188.8

2,534.3

16

3Draft Budget

2,054.0

2,651.8

29

Difference

(134.8)

117.5

-




Movements in TfL reserves

Transfer to/(from)
TfL reserves,
2003/04, £m


Transfer to/(from)
TfL reserves,
2004/05, £m


4Consultation Budget

365.9

(212.8)

5Draft Budget

557.7

(340.3)

Difference

191.8

(127.5)



12. The differences are principally due to the forecast underspend of £345m in 2003/04 (see paragraph 16 below), of which £96m (or 28%) relates to non-Underground items and £249m (or 72%) relates to the Underground.


13. In terms of the process which led to such a degree of change to the figures in the five weeks between the Consultation and Draft Budgets, it is important to note that TfL splits its financial year into 13 four-week periods. The Consultation Budget was based on period 8, while the Draft Budget was based on period 9. Given that the quarterly bottom-up re-forecast takes place at the end of periods 3, 6 and 9 and 13, this means that the period 8 data used for the Consultation Budget reflected the second quarter bottom-up re-forecast, rather than the third quarter re-forecast used for the Draft Budget.


14. The TfL Chief Finance Officer, when asked on 4 February about his confidence levels regarding the forecast TfL outturns presented in the Draft Budget proposals, replied:

I am very confident.


15. As the table above shows, the Mayor is proposing in his Draft Budget that TfL’s net service expenditure increase by 29% in 2004/05. TfL officials are keen to stress that the figure to look at is gross expenditure rather than net expenditure. Unfortunately the Mayor’s budget proposals present net rather than gross expenditure which makes this comparison not as easily available. The TfL Chief Finance Officer told the Committee that, using gross rather than net figures, expenditure is due to rise by 16% from 2003/04 to 2004/05.


16. TfL is forecasting a £345m underspend in 2003/04, which will largely go to earmarked reserves for 2004/056. This, along with proposed 16% year-on-year increase in expenditure, raises the issue of whether TfL has the capacity to spend the sums being allocated to it. It is important to note in this regard that TfL is somewhat different from other GLA Group authorities, particularly police and fire, in that its capital programme is so much larger, and consumes so much of its budget, and is therefore liable to cause greater variances against budget. There are two main factors to consider for TfL’s 2004/05 spending plans:

  • Bus network costs

  • The Underground Investment Programme (UIP).


17. Bus network costs are due to increase by approximately £300m in 2004/057. The Committee has commented on this in its previous reports and is holding a session on 4 March to look at bus contracting arrangements in more detail.


18. The UIP consists of those capital programmes which the Underground funds and which fall outside the PPP contracts (the UIP is discussed further in paragraph 25 below). The TfL Chief Finance Officer told the Committee at its 4 February meeting that:

I think the area that we will be looking at most closely (in 2004/05), where we will need to deliver more, is the Underground UIP … because clearly, for various reasons, there was not delivery, to the extent that we need, on the UIP in 2003/04.


19. We also note that Underground earmarked reserves are due to stand at £184m at the end of 2004/058. These earmarked reserves are for those on-going Underground projects which fall outside the PPP. The Committee will continue to monitor the level of earmarked reserves held by TfL for the Underground.


20. Three issues emerge from the larger than expected TfL underspend:

  • The need to look at next year’s budget process in terms of how the timetable relates to TfL’s quarterly re-forecasts

  • The accuracy of existing TfL forecasts and what lessons can be learnt for the future, particularly regarding Underground expenditure trends

  • The capacity to spend in major areas such as the UIP, especially as this will play a part in discussions over TfL funding during the course of Spending Review 2004.

D. Non-Underground underspend


21. The non-Underground underspend is forecast to be £96m in 2003/049 which covers a wide range of budget heads. For example, there is a forecast underspend of £6.4m on bus priority measures, of which £4.9m relates to schemes on borough roads and £1.5m to schemes on the TfL Road Network (TLRN)10. The TfL Chief Finance Officer told the Committee at its 4 February meeting that:

I think it (completion of bus priority measures) is better than we achieved in 2002/03 – that does not mean it is acceptable – but we are getting better at it.


22. The level of overprogramming proposed in the Draft Budget for 2004/05 is £80m11, reflecting the uncertainties which exist over the phasing of many of TfL’s schemes. The monitoring figures and outturn for 2004/05 will provide further indications of the level of overprogramming required now that the Underground has transferred to TfL.


23. The non-Underground underspend also includes the forecast £21m in management and support cost savings in 2003/0412. The Draft Budget includes the statement13:

Other TfL savings including lower costs of implementing the Under 18 fares initiative, savings in staffing costs, reduced Prestige operating costs and reduced management & support costs (£21m). These savings will be used to fund projects brought forward from 2004/05 and overspending in road maintenance areas.


24. There is bound to be some variance in a budget as large as TfL’s, but we do expect TfL’s base budget to reflect the spending patterns over a period of time. For example, the Committee has raised the issue of levels of take-up for the Under 18 fares initiative on a number of occasions. This initiative was rolled out on 4 January 2004 and we look forward to receiving data from TfL on this in the future.


E. Underground underspend


25. The Underground underspend is forecast to be £249m in 2003/0414. One of the major elements in that is the Underground Initiative Programme (UIP) which is forecast to underspend by £56m in 2003/0415. The UIP is essentially the Underground’s capital programme outside of the PPP contracts and covers many of the projects relating to station improvements. In most cases the work has to be offered to the PPP contractors, also known as Infracos, in the first instance.


26. A paper to the January meeting of TfL’s Finance Committee stated that16:

These programmes (UIP) were considerably over estimated in LUL’s 2003/04 budget as negotiations with the Infracos specifying the exact deliverables have taken longer than anticipated. In particular, cost estimates are higher than LUL originally anticipated and efforts are being made to ensure value for money is obtained.


27. One example of the cost estimates being higher than anticipated is the programme of works for Wembley Park station to meet the needs of the new national stadium. Funding of £23m was secured for that project, but when it came to project approval the estimate was £31m and still subject to final costs from the PPP contractors.


28. The Committee will continue to monitor progress on UIP, particularly given the TfL Chief Finance Officer’s statement at the Committee’s 4 February meeting that:

The size of the underspend on UIP in 2003/04 is clearly disappointing … and it has become clear that this was a budget (for the Underground) … (which) has got some flawed assumptions in it.


29. In terms of the PPP contracts, which are forecast to underspend by £125m in 2003/0417, the contractors have already lost £23m in abatement charges18; a form of financial sanction for underperformance. In response to Members’ questions on the potential for further abatement charges resulting from the recent spell of bad weather, the TfL Chief Finance Officer told the Committee on 4 February that:

If they (the PPP contractors) do not deliver the customer hours they are supposed to, and the responsibility for it is allocated to them, then they pay.


30. The Committee has already raised the issue of potential savings on the Underground ‘central services’ budget line, which is forecast to underspend by £110m in 2003/0419. We shall also keep this area of expenditure under review.


31. Finally, on the Underground underspend, we note the TfL Chief Finance Officer’s statement on 4 February that:

The fact that the Underground spend is so much less than was originally budgeted is something that is getting enormous attention on our part, and when we have more firm information, we would be happy to share it with you.


F. Income from bus fares


32. Bus income is forecast to be £27m in excess of budget for 2003/0420, of which £10m relates to the increased bus fares introduced in January 200421. The Committee has asked TfL to provide an estimate of how much of the remaining £17m in excess income is a result of recent temporary closures to the Central and Northern Underground lines.


33. A paper presented to TfL’s Finance Committee in January stated that22:

This additional income will be carried forward into reserves to enable the part funding of the Western Extension of the Congestion Charging scheme costs in 2004/05.


34. The Committee recommends that TfL uses any future excess bus fare income it generates to fund improvements to the bus network, rather than to fund other transport schemes, such as the proposed extension of the congestion charging zone.

G. Risks and opportunities


35. We note that TfL has identified risks of up to a maximum costs of £87m and opportunities of up to a maximum saving of £47m in 2003/0423; a range of £134m. These include transactions relating to the PPP contracts and uncertainty over rolling stock costs arising from the Chancery Lane derailment. The Committee will keep the risks and opportunities TfL faces under review in the light of the 2003/04 outturn.


H. Spending Review 2004


36. We note that the Department for Transport (DfT) has asked TfL to meet the £45m funding shortfall on the LT pension fund out of LUL reserves in 2004/0524, but that, for the years after that, it will be looked at as part of the government’s Spending Review 2004 (SR2004). The Committee will look in more detail at the pension cost pressures TfL and other GLA Group authorities are facing at its 18 March meeting.


37. We also note that TfL has reduced the shortfall forecast for 2004/05 by £45m (to give no shortfall for that year) and has increased it by £75m for 2005/06 (to give a shortfall of £1.02bn for that year)25. Decisions taken by government over the course of SR2004 on TfL’s funding requirement for 2005/06 and beyond, which is widely acknowledged to be aspirational, have the potential to reshape TfL’s budget plans and that will be the focus of future Assembly scrutiny work.


38. Finally, as noted in the Committee’s response to the Mayor’s Draft Capital Spending Plan for 2004/05, we note the approaches TfL has made to government on its potential borrowing plans under the new Prudential Code. TfL is currently waiting for an indication of whether there is a national limit on local authority borrowing so that it can assess the extent to which the £2.5bn of capital expenditure it has earmarked as being potentially suitable for Prudential borrowing is acceptable to government26:


Financial year

TfL capital expenditure*, £m

2004/05

403

2005/06

561

2006/07

550

2007/08

533

2008/09

432

Total

2,479

* Identified as being potentially suitable for Prudential borrowing

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