London Overground: Rising interest rates behind unbudgeted £281m spend on trains, TfL confirms

Rising interest rates were behind Transport for London’s (TfL) decision to spend an unbudgeted £281 million purchasing London Overground trains, a committee has been told.

The cost is noted in the transport authority’s 2022/23 budget, in which it states it overspent a total of £252m on new capital investment over the year.

At a London Assembly budget and performance committee meeting earlier today (July 12), Patrick Doig, chief finance officer at TfL, explained the decision to buy the Class 378 trains was largely to protect the organisation from rising interest rates.

Questioned by Liberal Democrat AM Caroline Pidgeon on why the unbudgeted purchase was made, Mr Doig explained they were bought having been leased since the mid-2010s.

While a deal was in-place until 2027, Mr Doig said that over the last 12 months, TfL had been looking at a number of factors “to both reduce risk and cost” regarding the ongoing lease of the stock.

Pritesh Patel, group finance director at TfL, added: “Some of those risks that we were looking at were interest rates. Interest rates are creeping up, and that was a risk in the leasing arrangement.”

Compounded by other concerns related to tax costs and a future refinancing risk once the lease comes to an end, Mr Doig said TfL made the decision in March to buy the trains, which serve the eastern line of the Overground.

He told the chamber that based on projections, the purchase will deliver “a saving over the remaining life of the vehicles that warranted that transaction to be completed”.

The committee was meeting to scrutinise the mayor’s £20 billion 2022/23 budget, from which money is allocated to bodies including the Mayor’s Office for Policing and Crime (MOPAC) and TfL.

Ms Pidgeon further queried the status of the Elizabeth line trains, which were initially owned before being sold and then leased back to TfL, and whether that stock is also being reviewed in terms of risk.

Mr Doig confirmed they are being looked at, “but we have no plans to purchase those at the minute”.

He added the vast majority of buses, some 8,000, are also leased, though TfL does own the 1,000-plus Routemasters.

Conversations with operators are ongoing as to whether the current arrangements are “optimal”, he said.