Edinburgh's tram extension: Fares shortfall will cost council up to £9.25 million a year

A fall in projected passenger numbers for Edinburgh’s tram extension will leave the city council having to find up to £9.25 million a year to fund the new line, councillors have been warned.
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A report to the finance committee says the pandemic led to a fall in patronage on public transport globally, including the Capital's buses and trams, and while numbers are starting to recover, the rate and extent of recovery remains uncertain.

And it says the council should budget £7m of support in lieu of fare income for 2023/24, when the extension is due to open, and £9.25m each year from 2024/25.

Artist's impression of a tram on Leith WalkArtist's impression of a tram on Leith Walk
Artist's impression of a tram on Leith Walk
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In addition, the report says the council will need to find £1m in the first year and £1.5m a year thereafter to pay for free travel for under-22s on the extension – and a further £1.5m a year on the existing line – in view of the Scottish Government’s refusal to subsidise tram travel for this age group in the same way it is funding bus travel.

The three-mile extension from York Place down Leith Walk and onto Newhaven was supposed to be funded by an extraordinary dividend from Lothian Buses and then income from fares once it was up and running.

But the council has already accepted Lothian Buses will be unable to pay the dividend for the foreseeable future due to the impact of Covid on the bus company’s finances.

And now the pandemic is expected to hit fare revenue into the future as well.

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The report says: “As the longer-term impacts of the pandemic become clearer, the council will work with Edinburgh Trams to establish revised farebox income projections. While the position remains uncertain, however, it is prudent to plan support for the tram system, if required.”

It says the project remains within its £207m budget and the shortfall in the dividend has been offset by savings in borrowing costs.

Tory finance spokesman Andrew Johnston said: “They are finally being honest about the trams and saying the dividend will never be paid and the council is going to have to prop up the trams to the tune of £9.25m a year because they won't bring in the ticket income they said.

“Their business case, which was ‘We're going to make so much money on tickets it'll pay for itself’, is not true. Instead it will need £9.25m a year to fund that.

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“That's a lot of money when this was meant to be a sensible and affordable thing to do at the time.”

He also challenged the council’s argument that £20m saved by lower borrowing costs made up for the loss of the £18m dividend.

“They’re saying ‘Don’t worry about not getting the dividend; we’ve got reduced borrowing costs. My point is if they'd got the dividend as they'd said, they’d be £18m better off. Now on top of that, indefinitely it seems, we're going to to be £9.25m a year worse off.

“As warned in 2019, the business case didn’t stack up and was overly optimistic and now were seeing the result of that decision.”

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Transport convener Lesley Macinnes said: “Since the emergence of the pandemic, we’ve carried out regular reviews of the project’s business case, which takes into account future farebox revenues as a means of repaying the loans borrowed to construct the tram.

“As a result, additional financial support is being earmarked, while further analysis of the projected long term patronage is undertaken as Covid restrictions are relaxed and travel habits evolve. We will of course be continuing to look at ways of mitigating these sums.”

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