Tube fares may rise to fill £600m hole in TfL efficiency savings

An internal report seen by the Standard shows that Transport Commissioner Peter Hendy has expressed confidence that only £1.8billion of savings can be achieved - compared with a £2.4billion target. Today there were warnings that the £600million shortfall would have to be made up by increases in Tube and bus fares.

Mr Hendy announced four months ago he had "identified £2.4billion in savings and efficiencies", saying he recognised "the need to deliver clear value for money for London's taxpayers and farepayers, enabling fares to be kept affordable".

The savings - over a nine-year period - were criticised by transport unions as draconian. But Mr Hendy himself said the £2.4billion figure was "not enough" and there needed to be "a continuous effort to drive down costs in every part of TfL".

But in a report to the most recent meeting of the TfL board, seen by the Standard, Mr Hendy announced that the £2.4billion saving was proving "challenging" and said: "At present there is only high confidence on [achieving] £1.8billion of [savings] initiatives." One board member told the Standard: "This is ludicrous. Over the nine-year period TfL will be spending not far off £100billion and they are saying they can only be confident of saving less than two per cent of it."

If it cannot be found elsewhere, the board member said, it may have to come from higher-than-expected fare increases. The £600million which may no longer be saved is roughly equal to the amount raised by the last seven years' fare increases on the bus network. A TfL spokesman insisted the organisation was "totally committed" to achieving the £2.4billion cuts. "We are making excellent progress and are completely confident of delivering at least the full amount," he said.

Asked to explain the difference between this and Mr Hendy's statement, he said the accountants had asked for "more detail" of the cuts before they were prepared to endorse TfL's £2.4billion figure. TfL faces financial difficulties in the next few years as bills for Crossrail, the Tube PPP, the East London Line extension and other major projects become due - while passenger numbers and revenues seem likely to fall in the recession.

TfL has planned for fare rises of at least one per cent above inflation over the next few years, along with the efficiency drive, which was expected to cost more than 1,000 back-office jobs.

However, there has been growing resistance inside the organisation to the cost-cutting programme, with unions threatening strike action and claiming that the "real number" of job losses may be as high as 3,500.

The likely drop in the rate of inflation may also affect the organisation's finances. By this July, the month which is taken as the inflation baseline for the following January's fare rise, inflation is likely to be very low or even negative. This would limit the fare rise the Mayor was able to impose, or might prevent him imposing an increase at all.

TfL has recently come under fire for its relatively high costs. As the Standard revealed, it has 123 top managers earning more than £100,000 a year each - a number which has grown more than six-fold since 2000.

Statistics from the Department for Transport show that operating the London bus network costs £2.51 per vehicle kilometre - more than twice as high as the average outside London.

TfL is also concerned at the prospect of a critical report by the public spending watchdog, the National Audit Office, into its stewardship of the Underground. Sources close to the report say Mr Hendy's organisation has been trying to have the document watered down.