Transport secretary Grant Shapps also wants ‘pensions and workplace reform’ at TfL, faster moves to driverless trains, cuts to concessions for children and pensioners, and a larger congestion zone © Tolga Akmen/AFP/Getty Images

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Ministers have threatened to take direct control of Transport for London unless mayor Sadiq Khan accepts a package of measures including higher council tax, a much larger congestion charge zone and higher tube and bus fares in return for rescue funding.

The mayor is seeking a £4.9bn settlement for the next 18 months to bail out TfL whose passenger numbers and revenues have shrunk since Covid-19 restrictions were introduced in March. The government gave an initial six-month package worth £1.6bn to the transport authority in May.

Last Friday the deadline for the increasingly acrimonious talks was pushed back by another two weeks and the board of TfL is holding a crunch meeting on Wednesday.

Earlier this month Grant Shapps, transport secretary, wrote to Mr Khan setting out a long list of demands being sought in return for any financial rescue package, according to a letter seen by the Financial Times.

Mr Shapps proposed a six-month funding deal to March 2021 dubbed “the H2 deal” ahead of a longer-term settlement.

But the transport secretary warned that the government’s support for London would “take a different form” if the two sides failed to strike an H2 deal or if its terms were not met.

Instead, he threatened to seize control of TfL and run it from Whitehall. “We will be taking reserve legislative powers allowing us if necessary to direct TfL,” he said. “This would be combined with a further series of short-term funding settlements.”

The threat to undermine Mr Khan comes at a fraught time for English devolution — with ministers having failed to find a compromise this week with civic leaders in Greater Manchester over Covid-19 restrictions.

In his letter Mr Shapps said he expected Londoners to pay more through a supplement to their council tax to help improve TfL’s finances.

He also made clear he expected the mayor to begin “pensions and workplace reform” at TfL, accelerate the “inadequate” progress on implementing driverless trains, cut fare concessions for children and pensioners and implement a fares increase of more than the “RPI inflation + 1 per cent” model agreed in May. The mayor has imposed a fares freeze over the past four years.

The transport secretary also urged the mayor to extend the central London congestion charging zone to cover the same areas as the “Ultra Low Emission Zone” from October 2021. Extending the zone to the north and south circular roads would increase its size 18-fold.

In a reply on October 6, Mr Khan said he was concerned about an initial delay to the negotiations, leaving TfL “right against the wire”.

He compared the imposition of stringent conditions on London with the government’s “continued blank cheque” for the rail industry with only minimal conditions.

In his letter, the mayor rejected Shapps’ demands, saying instead that the government should restore the central operating grant which has been phased out in recent years.

He said a council tax supplement would “place even more reliance on an already broken form of taxation and would be regressive” and argued that fares rising faster than inflation would be a “huge economic mistake”.

Mr Khan also warned that expanding the congestion charging zone would be disastrous. “This blunt approach would have a catastrophic effect on the economy of inner London and beyond . . . it would rightly be bitterly opposed by business groups, communities and local authorities.”

Shaun Bailey, Tory candidate in next year’s mayoral elections, said Mr Khan’s “mismanagement” of TfL predated the coronavirus crisis: “Yet again he’s trying to shift the blame on to others.”

But a spokesperson for the mayor, commenting on the leaked documents, said there was no way he would accept the conditions which would “choke off London’s economic recovery”.

A spokesperson for the DfT said it would be inappropriate to discuss the detailed discussions. “We have agreed an extension to the support period and to roll over unspent funding from the Transport for London Extraordinary Funding Agreement, allowing further time for negotiations for a new settlement.”

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