Transport for London seeks new powers with developers

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Transport for London (TfL) is currently seeking to team up with private sector partners to give it new powers, especially regarding land development, putting public land and affordable housing at risk, as well as creating more financial risk for TfL itself.

The current TfL bill could be crucial to the future of how public land is developed in London. Clause 5 of the bill would enable TfL to form ‘limited partnerships’, either as a general or limited partner, and to promote and assist limited partnerships. Limited partnerships lack transparency, in part because such partnerships do not have to file accounts do not have to file accounts at Companies House.

Limited partners have limited liability, which means they have no management authority and are only liable on debts incurred by the firm to the extent of their registered investment, whereas general partners can have unlimited liability. TfL would face significant problems whether it was a limited or general partner.

TfL is a local government body controlled by a board of members appointed by the Mayor of London and Boris Johnson chairs the board. At present TfL has to be relatively transparent, and in fact makes a big thing about transparency, but if this bill is passed the door will open for TfL to become much less transparent.

There have been four petitions against Clause 5 of the bill from the National Union of Rail, Maritime and Transport Workers (RMT) and three members of the public. Successfully petitioning against the bill meant there had to be a debate about it in the House of Commons where petitioners had a chance to have their say, which happened on 9 September. The transcript of thedebate can be read here.

The purpose of the bill is to provide TfL “with a broader set of powers so that it can meet its business needs more flexibly” and to enable it to maximise the value of its assets, which its current status does not allow. Currently, TfL may only form corporate bodies including companies and limited liability partnerships. The bill purports to enable money to be saved for taxpayers and farepayers. “TfL proposes that it may form a limited partnership only for the purpose of carrying out its functions, which prevents speculative arrangements.” However, this seems unlikely in reality. If this bill is passed, surely it opens the door for more speculative developments, such as the one at Earls Court (see below).

John McDonnell MP (Labour), convenor of the RMT Union parliamentary group and one of the objectors to the bill, expressed a complete lack of confidence in the ability of TfL to go into partnerships with the private sector “without either creating a disaster or being ripped off” and reminded people of what happened with TfL and its relationship with the Public Private Partnership (PPP) “which was a disaster”.

In 1999, London Underground Ltd (LUL) was restructured in preparation for a Public Private Partnership (PPP) and in 2000 TfL was created as part of the Greater London Authority (GLA) by the Greater London Authority Act 1999. However, TfL did not take over responsibility for the London Underground until 2003, due to widespread resistance to the PPP. The fight against the PPP lasted for five years and involved many groups and individuals, such as the Campaign Against Tube Privatisation, with the RMT often being the most militant in their resistance to the various stages and aspects of privatisation, such as private contractors taking more health and safety risks leading to more passenger deaths, such as the Potters Bar crash in 2002.

The PPP is a story of private companies sucking huge quantities of money out of the Tube while failing to deliver their promises to adequately maintain and improve the system. This has been documented in detail by Janine Booth in her book Plundering London Underground which outlines the history of public and private ownership of London Underground over the last century and a half.

The current bill represents the latest stage in privatisation of the Underground. It is likely that some of the contenders for previous rounds of privatisation will be some of the companies that TfL is seeking to enter into partnerships with now. Corporate Watch has learnt that the TfL procurement process to find development partners is likely to start at the beginning of 2015, with TfL procuring a small number of joint venture partners to work with to develop their property estate. TfL expects this to attract a significant amount of interest from the property press and media more broadly.

In the commons debate, McDonnell said that the main balance of interest in the partnerships TfL are proposing will be with the private sector, with the public sector being left with the responsibilities, which has been the case throughout TfL’s participation in developments with private sector entities. He said “There is a real worry that giving Transport for London these powers will result in a virtual frenzy in TfL—certainly under the guidance of the current Mayor—to convert land in central London for uses other than transport usage.”

Clause 5 means that TfL, without Secretary of State approval, can become a sizeable landlord with commercial lets and borrow against those revenue streams, but the bill does not make clear what the scale of operation TfL is looking at is. McDonnell highlighted that limited partnerships open TfL up to unlimited liabilities and a large amount of risk and that it is concerning that TfL’s only justification so far has been that these partnerships are the preferred route of the developer, suggesting that this bill is largely due to the development companies that have approached TfL. In addition, limited partnerships introduce a real vulnerability to the tax payer, especially the London council tax payer.

The bill will now go for further scrutiny at the Opposed Bills Committee, on a date to be confirmed.

The combination of a number of factors is cause for serious concern: the possibility of the bill enabling TfL to form limited partnerships, which would enable it to team up more easily with companies such as Capital & Counties Properties Plc (Capco) and in so doing be less transparent about their operations; the amount of public land TfL owns; the fact that TfL is in need of money because its central funding from the government has been cut; the case study of Earl’s Court showing that similar joint developments do not involve proper scrutiny and consultation; and MIPIM (the world’s largest property fair) happening in the UK for the first time in October.

If the bill is passed, it would set a precedent whereby the development of public land by private companies becomes much easier.As a partner in a joint venture with another company, TfL would not be bound by the same regulations as it would be on its own, which means TfL could get away with not taking responsibility for the consequences of joint ventures. There are serious concerns that we could see TfL and a small group of developers ‘regenerate’ every inch of London without consideration for local communities, genuinely affordable housing etc. This would depend on local councils up to a point, but Boris Johnson still has the power to call planning applications in like he has with Mount Pleasant, completely bypassing the council.

Boris’s 20 year development plan for London, the London Plan, is still in the process of being amended since it was published by Boris in July 2011. The group Just Space, a network of community groups cooperating on London planning, has outlined the problems with the plan and is monitoring what is currently happening with the public examination of the Mayor’s proposed changes to the London Plan. Many of the groups in Just Space report that the London Plan entails rapid urban change in the form of the creation of space for corporate activity, which directly threatens the aspects of the current London economy which are diverse, multi-ethnic and local. The current TfL bill seems to go hand-in-hand with Boris’s Plan to increase the polarisation of London’s communities.

TfL potentially has London’s biggest property development portfolio, with 5,700 acres of land across London and approximately 800 archways, meaning Boris Johnson is now one of the largest public sector landowners in London. In April 2012 the Mayor inherited 635 hectares and the Greater London Authority (GLA) group has extensive property holdings via its functional bodies. The GLA’s land and property database, which includes TfL-owned land, can be found here.

How TfL develops its land is of public concern, because it may open the door for many more companies to follow in the footsteps of cities like Hong Kong.In the quest for more private income for TfL due to cuts to its government funding, Boris has been inspired by the Hong Kong Metro. The company MTR runs the Hong Kong metro and almost half the company’s revenue now comes from property rental and development. The model it follows is one of exploiting the situation whereby the freehold to a lot of land in Hong Kong is government-owned, so MTR buys the leaseholds at market rates but is then gifted development rights, meaning the company is able to capture any increases in the land’s value resulting from a new metro station via the deals it extracts from developers of new housing, offices and shopping centres over and around the line.

TfL is being forced to find private sources of money, because its government grant was cut by 12.5% in the 2013 spending round. So it is attempting to save money by selling property, including London Underground’s headquarters at 55 Broadway and the Lillie Bridge depot at Earl’s Court. Successive governments seem to want London Underground to ‘pay its way’, but studies of urban transport around the world always conclude that mass public transit in a city cannot be self-financing, it needs to be publicly owned and subsidised.

TfL now plans to increase its property-based revenues by half by 2018, with initiatives such as new retail ventures. It also hopes to extract a new level of development income from Crossrail and the Battersea Northern line extension. But at what cost to the cohesion of our society, the environment, the safety of the Underground network and the lack of genuinely affordable housing? There have been demonstrations in Hong Kong about lack of affordable housing relating to the corporate development of the transport systemand there has been resistance in London to similar corporate housing and development, which looks to get worse if this TfL bill is passed.

Capco and Earl’s Court case study

In February the Boards of TfL and the developer Capco approved terms for a proposed joint venture to ‘develop’ Earl’s Court & West Kensington in west London, which would be owned 63% by Capco and 37% by TfL, with Capco as the general partner and business manager. In March TfL announced the ‘Earls Court Partnership Limited’ plan, which will enable the development of Earls Court One and Two in line with the Earls Court “Masterplan”. TfL’s Commercial Development Director Graeme Craig said:

“This is the first example of our new approach of retaining and investing in our assets across London, working in partnership with leading developers like Capco, which will deliver real long-term value for fare and taxpayers.”

As John McDonnell MP (Labour) and Andy Slaughter MP (Labour) made clear in the recent debate in the commons, the Earl’s Court “Masterplan” joint venture between Capco and TfL would have been a limited partnership had this been an option at the time. In the debate, the “Masterplan” was referred to as an example of how a TfL joint venture has exposed the local community to “almost devastation”, “extreme ruthlessness” and not only a “degrading exploitation of public assets but a debacle”.

TfL’s joint venture with Capco will demolish 22 acres of social housing, the two Earls Court Exhibition Centres, which bring over £1.3 billion a year to the local and national economy, and the London Underground Lillie Bridge Depot, which employs over 500 people. TfL owns the freehold to the Earls Court exhibition centres and Capco is the leaseholder of both sites.All of the sites are to be replaced by luxury flats well out of reach of the ordinary person. The first part of the demolition is due to start in the middle of November 2014.

Capco has been criticised by the London Assembly for putting local businesses under ‘inappropriate pressure’.In Capco’s 2013 annual report it is telling that the corporate responsibility section on local communities does not mention local communities at all.

Dave Hill has been writing extensively in The Guardian about Earl’s court. He says:

“…it is, without doubt, a vividly distinctive and revealing case study of Conservative thinking on urban development, housing, planning powers and social policy put into radical effect at local government level, supported by regional (City Hall) and national government.”

Dave Hill criticises “the eagerness of the mayor and his borough allies to transfer public resources into the hands of private interests for whom the greater good of London and most Londoners is, to put it mildly, not a top priority”.

The majority of residents on the West Kensington and Gibbs Green estates do not want to move to the new development and have voted for community control of their estates. There is a vibrant local campaign – Save Earl’s Court– against many aspects of this development, with a wide range of activists, journalists and locals campaigning and reporting on what is going on.

MIPIM – the world’s largest property fair – coming to London

If all this wasn’t already enough, MIPIM (Le Marche International des Professionnels de l’Immobilier, International Market of Real Estate Professionals) is happening in the UK for the first time in October, where developers and property professionals will be planning how to get their hands on millions of acres of public land. MIPIM has been running for 25 years in Cannes, France, bringing together the most influential players from all international property sectors and offering unrivalled access to the greatest number of development projects and sources of capital worldwide.

Boris is at the forefront of MIPIM UK and will be delivering a keynote speech to open the conference. Capco own Olympia where MIPIM is being held and no doubt TfL will be looking to make some deals in October. To get an idea of the tone of the conference, there is a session called ‘Investing in affordable housing: Is it worth it?’. MIPIM will create unaffordable, insecure housing around the UK and the undemocratic process of MIPIM affects who controls land and how it is used, which contributes to the corporate takeover of community space and public services.

Local councils also participate in MIPIM, mostly to enter into deals over public land. However, some councils are critical of MIPIM or have decided not to attend. Tower Hamlets Council said that it will not be represented at MIPIM UK and Councillor Rabina Khan condemned the model of profit-driven housing policy represented by MIPIM, arguing that public land should be used to build the homes we need, not for speculative greed. This is very promising as it could be used to try to get other councils to follow suit.

There is a growing network of people working together under the banner No To MIPIM, which is planning actions and an alternative conference on housing issues during MIPIM 15 – 17 October in London.