Transport Crisis in London

Both Sadiq Khan, Mayor of London, and Andy Byford, London Transport Commissioner, have warned that unless they get more money from the Government then there are going to be savage cuts in public transport and on major infrastructure projects. The latter might include the required repairs to the Rotherhithe Tunnel, the A40 Westway and A12 Gallows Corner flyover leading to their closure.

Some 100 bus routes face the axe and frequencies may be cut on 200 other routes. Other proposals are no more electric buses, no more step-free stations, no more “Healthy Streets” cycling and walking schemes and no more 20mph zones or safer junctions.

Now some readers might welcome some of those things and clearly the Mayor is trying to scare the Government into providing more funding within weeks. But some of those suggestions like closure of the Rotherhithe Tunnel and the Westway would be disastrous for the functioning of the road network in both east and west London.

How did TfL get themselves into such a mess? It all stems from the policies adopted by Ken Livingstone which was for massive subsidies to buses and commitments for large expenditure on Crossrail and other underground projects. The bus network has certainly been greatly expanded but at a cost that was never justified and Crossrail has been a financial disaster. Over budget, over schedule, and never justified on a cost/benefit basis. The Mayor was relying on income from it to cover TfL’s future budgets which it never has.

Boris Johnson never tackled the problems created by Livingstone when he was Mayor while Sadiq Khan has actually made matters worse by spending enormous amounts of money on cycle lanes, LTNs, and other schemes that have damaged the road network. He has also encouraged the growth in the population of London while the infrastructure never kept up with it despite massive central Government funding.

A report in the Express shows that £515 more per person was spent on transport schemes in London than on the North of England. A new report from the IPPR North think tank has published an independent analysis of transport spending over the past decade. Between 2009/10-2019/20, the North received just £349 per person in transport spending. In comparison, the UK as a whole received £430 per person, while London received a staggering £864 per person. Where did it all go one might ask? On pointless and generally uneconomic schemes not justified by any cost/benefit analysis is the answer.

The daft transport schemes such as the Congestion Charge and the ULEZ have actually encouraged people to move out of London and the cuts to public transport that are proposed will expedite that trend. With falling income from bus and tube fares already caused by the pandemic, the outlook is certainly bleak. But failing to maintain the infrastructure such as bridges, tunnels and flyovers while the Major prefers to spend money on other things is surely a sign of gross incompetence.

London needs a new transport plan where expenditure is matched to income and needless subsidies removed. In other words, people should pay the cost of the trips they take on public transport and free riders should be stopped. But will a socialist Mayor ever take such steps? I doubt it. So London is likely to go into further decline and more people will move out.

But London is at the heart of the UK economy so there is some justification for central Government stepping in once again to reform London’s governance. We need less populism (which generally means hand-outs to win votes) and more financial acumen in the leadership. Certainly the current arrangement where you have a virtual dictator in the role of Mayor and a toothless London Assembly is not working.

The key to improving the London transport network is not to have it all (both public and private transport) under the control of one body (TfL) which leads to lack of competition and perverse incentives. For example, encouraging cycling to relieve pressure on public transport while causing more road traffic congestion and introducing schemes such as the ULEZ to help subsidise public transport while increasing the cost of private transport.

Perhaps we need a new Dr Beeching to put the London transport network back into a cost-effective structure as he did for British Rail. But at least the Government seems to have taken some rational decisions by cancelling the eastern link of HS2 to Leeds. Just like Crossrail in London, HS2 was never justified in terms of benefits achievable and the money would have been better spent on smaller projects. But politicians love grandiose schemes. Reality seems to be finally sinking in on the national scene even if not yet in London.

Roger Lawson

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Dividend Cut at Elecosoft, Dignity Trading and Public Transport Problems

Many investors are suffering from dividend cuts by companies. The latest one in my portfolio is Elecosoft (ELCO), a company that produces software for the construction sector. In their announcement of the full year results this morning they indicated revenue and earnings were much as forecast to December, and cash flow was good enough to put them in a net cash position.

Normally these results would not have caused any concerns that the dividend would be reduced or cancelled, but not this year. Even though they only previously paid small dividends and half the “cost” as a scrip dividend, this year’s final dividend has been cancelled. This is what the company had to say:

“Proposed Dividend: Elecosoft’s strong trading performance and cash generation in 2019, and, ironically, the strong start to trading in 2020, would normally have warranted the payment of an increased final dividend. However, having regard to the uncertainties created by the Coronavirus situation and the need to conserve our cash resources, the Board has decided to not recommend a final dividend”.

I don’t normally like to challenge the wisdom of management, who may know more than me about the trading position of the company and future revenue, but this does look at first glance to be excessively cautious. That is particularly so bearing in mind they could have paid it as a scrip dividend if they wished to conserve cash. ShareSoc has published some comments and written to the FRC, FCA and BEIS on the problem of dividend cuts suggesting they should issue some guidance. That seems to be a sensible suggestion because at present we don’t know whether this is just management panicking or being simply prudent.

One company that should surely be benefiting from the coronavirus epidemic is funeral provider Dignity (DTY) – I do not hold the shares. More deaths surely mean more business for them. But in their trading update today they show that it is not that simple. The company says the following:

“The absolute number of deaths increased by approximately one per cent to 161,000 from 159,000 in the comparative period last year. Sadly, since the end of the quarter, the UK has witnessed in excess of 20,000 deaths in a single week, the highest since the beginning of 2000. The number of possible incremental deaths as a result of COVID-19 is a matter of substantial speculation. Should 2020 witness a large number of incremental deaths, beyond the 600,000 originally anticipated by the Office for National Statistics, then it is possible that 2021 and 2022 could experience a lower number of deaths than in 2019. The Group will not speculate on the most likely outcome”.

In addition there is the problem that as many people cannot attend funerals, some funerals are being postponed or executors are opting for lower cost funeral packages. Dignity was already suffering from aggressive price competition which had prompted a strategic review before the latest crisis arose.

The company had previously decided to suspend dividend payments. Like Elecosoft they apparently are simply unable to forecast the likely impact of the epidemic on their business. So no guidance for 2020 is being provided.

On Saturday the 9th May Grant Shapps, Transport Secretary, said that only 10% of former public transport capacity will be available in some locations if social distancing is to be maintained. It seems likely that will be so for many months even if people are permitted to go back to work. This will clearly cause major problems in London where almost all commuters use public transport such as trains, the underground and buses.

After the Prime Minister spoke on the 10th May, Mr Shapps issued this tweet: “Speaking this evening the PM was clear – if you’re going back to work in a job that cannot be done from home, please avoid public transport if possible. Go by car, or even better, cycle or walk. To help, we’ve announced more than £2bn in the biggest ever boost to cycling and walking”.

An example of how problematic London transport has become is a report in the Times that says Transport for London (TfL) has asked the Government for £2 billion. To quote: “TfL is down to its last £1bn, which is being burnt at a rate of £21m a day — leaving it less than two months from emptying its coffers and illustrating the intense pressure on local authority finances”. The article suggests the Government will attach some strings to any funding.

Mr Shapps was clearly right to point out the public transport capacity problem, but his apparent remedy to get everyone walking and cycling makes little sense. It is a typical view of politicians who can afford to live in central London. But for the vast majority of London commuters who travel many miles to get to work, it’s simply impractical even if they are keen cyclists.

Mr Shapps also justified his proposals by saying the epidemic is a great health opportunity to encourage active travel with the objective to double cycling by 2025. He also proposes to implement at least one “zero emission” city, and argues that one of the few positives will be improved air quality. He actually said there are “more than 20,000 extra deaths a year attributed to NO2 emissions”.

This figure is nonsense. It repeats the past allegation of 40,000 deaths from air pollution in the UK which has been shown to be simply wrong and a corruption of statistical evidence. In reality, there may be a few months shortening of life expectancy from all air pollution sources, a lot of which cannot be removed such as natural sources. But the figure is essentially uncertain and it is clear there are no deaths directly attributable to pollution. To specifically indicate NO2, which mainly comes from transport, as being the problem is also wrong when the Government advisory body COMEAP could not even agree that NO2 contributed to the negative impact on health of air pollution from particulates.

Mr Shapps clearly knows little about air pollution and its impact on health but is using his ignorance to put a positive spin on his actions in response to the transport crisis.

Just to show how there is no direct correlation between traffic levels and air pollution, this is what the London Air Quality Network (LAQN) recently reported: “Levels of the pollutant nitrogen dioxide (NO2) has reduced significantly during lockdown, research from King’s College London has found. Concentrations of NO2 have lowered as much as 55% due to less road traffic. However, levels of PM10 and PM2.5 were higher after lockdown than at any other time in 2020, due to easterly winds and pollutants from northern Europe”. The reduction in NO2 is perhaps not surprising when measurements by the LAQN are often taken at the roadside so will be heavily influenced by adjacent traffic. But as particulates (PM10 and PM2.5) are of much greater health concern you can see that Mr Shapps’ spin on the air pollution issue is somewhat misleading. Other UK cities have also shown no direct correlation between traffic reduction from the epidemic and air pollution – at least to date.

The air pollution problem is much more complex than can be solved by encouraging walking and cycling alone.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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