Edinburgh tram extension could be derailed by financial impact of COVID-19, warn Tories

Edinburgh City Council has said there are no plans to cancel the project, with the risk to the council’s budget ‘limited’.

How the planned tram extension could look like at Elm Row

Finances at Edinburgh City Council have been hit so hard by the coronavirus crisis that it could lead to funding for the tram extension being “jeopardised”, Edinburgh Conservatives have warned.

The Tories’ financial spokesman at the City Chambers, Graham Hutchison, warned that the impact of COVID-19 on the finances of Lothian Buses was so great that a £20m dividend from the council-owned bus company, is under serious threat.

However, Lothian buses said it is too early to judge the full impact of COVID-19, while council leader Adam McVey said the impact to the project’s budget is limited.

Council leader Adam McVey said the full financial impact of COVID-19 was still unknown

The majority of the funding for the £207m tram extension is to come from borrowing, paid back through future ticket sales on the network.

It comes as a finance report to the council’s Leadership Advisory Panel was released to the public, laying out the extent of the financial challenge to the council from the pandemic.

The council is predicted to lose £53.5m if there is a three month lockdown, followed by another three months of slowly reduced measures, and no action is taken by the council.

Nearly £40m could be lost if lockdown lasts three months, the paper states.

Labour leader and deputy leader at the council, Cammy Day, accused the Tories of playing politics

£12m lost in parking income alone

Key points from the document include losses of;

£12.1m from on-street parking, enforcement and parking permits £6m from rent for council-owned properties £3.2m from a reduction in building warrant, planning and licensing applications £3.1m from unpaid council tax £1.2m from ticket sales and rents from cultural venues £340,000 from refunds for paid-for services cancelled due to COVID-19

However, the council says it could minimise the amount lost through funding from the Scottish Government, unallocated money from this year’s budget, and previously earmarked reserves.

This could see a reduction of £21.8m, with £11.2m in savings coming out of the council’s reserves. A further £11m is believed to be able to be saved through other means within the council’s control.

Even then, the council is predicted to lose at least £20.7m in six months from the crisis, with opposition councillors calling for a concrete plan from the SNP/Labour coalition on how it will respond.

‘Coherent approach’ needed, say Tories

Tory finance spokesman, Graham Hutchison, called for a “coherent approach” to address to council’s shortfall, and said the prediction was “realistic, not optimistic” and that the use of reserves to meet the budget gap must be watched carefully, due to the “open-ended situation.

Cllr Hutchison said: “The reserves are there for exactly this sort of situation, but there is a limit as to how far these reserves will go and this is very much an open-ended situation.”

He also warned the planned dividend from Lothian Buses to help pay for the tram extension to Newhaven was under threat due to a loss of income for the bus company.

He said: “I don’t think there is any great surprise that the lockdown is having an impact on bus companies nationwide and without going into specifics it is as you would expect.

“It is extremely concerning, particularly with the Lothian Bus dividend, which has been earmarked as financing for the tram extension.

“The council has signed contracts on a major capital project where dividends were identified for use in that business plan but anyone can see that finance is potentially now jeopardised.”

‘I’ve never seen anything as dire as where the council is now’

Green councillor and finance spokesman, Gavin Corbett, said it was the worst financial situation for a council he had ever seen.

He said: “I’ve been involved in budget processes for almost a decade now and I’ve never seen anything as dire as where the council is now.

“Of course, it comes directly from the council doing the right thing, either by providing extra help for struggling residents and communities; or reducing expectations on income.

“But even the very best scenario sees a budget hole of around £50m and that is assuming that council reserve funds are basically emptied with nothing left for any other emergencies.

“Although the Scottish Government has upped support for councils, that is only £5.6m at present, with maybe another £12m in the pipeline. That still leaves a huge hole.

“If basic services are going to be protected through this long period of shutdown and into recovery then Scottish and UK Governments are going to need to provide a lot more help.

“We can’t let a public health crisis become a crisis which also rips through critical services.”

‘We will make every effort to mitigate the impact’

Council leader, Adam McVey, said the impact of COVID-19 will not be known for some time, including for the tram extension.

He said: “The coronavirus outbreak is a global public health emergency and there is no question that the economic repercussions of this will be felt around the world.

“The Scottish Government has already published a State of the Economy report, detailing plans to keep the nation’s companies in business, keep staff in employment, and provide support to workers so that they can self-isolate and look after loved ones.

“As a City too, our overriding priority is to protect the people of Edinburgh’s lives and livelihoods. We’ve put a range of measures in place to support people and business and we’re working closely with Government on their support packages.

“We’ve also started work to engage sectors from all sides of the Capital to help us build a city recovery plan, and we’ve become the first local authority in Scotland to publish an initial understanding of how the virus could affect our revenue budget.

“These remain early reports and we’ve made it clear that much more work is needed before we publish a full impact assessment.”

He added: “The tram team have put in an enormous amount of hard work with our contractors to take us through this challenging period. The implications of COVID-19 are unlikely to be understood for some time but we will make every effort to mitigate the impact and get the tram project back up and running when we’re able to reopen the construction site.

“The Tram Project is being delivered for the future of our City and it’s important to note that the project is largely funded through borrowing repaid by future tram revenues, so any impact to the Council’s budget now is limited.

“This project is one of several key infrastructure schemes which are crucial to the sustainable, long-term development of the city, helping decarbonise the way we travel. It is exactly the kind of investment we need post-COVID-19 to ensure Edinburgh is a thriving, forward-looking place for people to live and work in.”

Tories playing politics, says Labour leader

Cammy Day, depute leader, accused the Tories of playing politics and said: “The Tories are quite unbelievably trying to use this crisis to drag the city backwards on sustainable transport and other areas.

“They need to stop playing politics and start working for the best interests of the city right now, it’s what Edinburgh deserves.

“These are predictions at this stage and a more detailed report will be brought forward later this Spring.

“All of the work we’re doing will inform the discussions we have with the Scottish Government around the cost of coronavirus to the city.

“We expect this impact to be reflected in the council settlement we receive towards the end of the year, but it’s important that we consider all options.

“It’s premature for us to make decisions right now, including any use of reserves and future Council Tax levels.”

Lothian Buses: Too early to know full impact of COVID-19

Lothian buses has said it is too early to know the full impact of COVID-19 on the council-owned company, despite a 90 per cent drop in the number of passengers.

Nigel Serafini, the interim managing director who replaced former boss Richard Hall after his resignation earlier this year, said it is modelling a number of scenarios in the hope of minimising losses.

The comments come as the financial impact of coronavirus is laid bare in a Edinburgh City Council report, with the full extent of the predicted impact to arms-length companies including Lothian and Edinburgh Trams kept secret.

Mr Serafini said: “Lothian is the UK’s largest municipal bus operator, contributing £44.1 million to our local authority shareholders in dividends over the last 10 years. Our team continue to focus on ensuring we can deliver our Critical Services Network for key workers and those who still require essential travel, whilst also maintaining the wellbeing of all of our colleagues.

“Over the past month Lothian has seen customer demand drop by over 90% and we are working closely with all relevant stakeholders including The City of Edinburgh Council and Scottish Government to safeguard jobs and ensure future of our business.

“Like many other commercial organisations it is still too early for Lothian to accurately forecast the full implications and financial consequences of Covid-19 however we continue to model a number of scenarios with the intent of mitigating financial loss.

“We are extremely grateful to all of our colleagues for their continued loyalty, commitment and dedication and to all of our customers for their patience, during what is an extremely challenging time for everyone.”