Parliamentary portcullis Session 2010-11
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Arrangement of Clauses (Contents)

Transport for London Bill

 

EXPLANATORY MEMORANDUM

This Bill provides Transport for London ("TfL") with further powers in respect of the arrangements for stewardship of its financial affairs and the management of its operational undertaking.

Clause 1 deals with citation and commencement, and Clause 2 with definitions of certain expressions used in the Bill.

Clause 3 provides for subsections (1), (2) and (4) of Clause 5 to come into operation on a day or days to be appointed by TfL.

Clause 4 removes the requirement upon TfL under subsections (1) and (2) of section 163 of the Greater London Authority Act ("the 1999 Act") to obtain the consent of the Secretary of State to dispose of operational land. Section 163 provides that neither TfL nor the Greater London Authority may dispose of the freehold of, or grant a lease for a term of more than 50 years, in respect of operational land of TfL without the consent of the Secretary of State. The restriction placed upon the Greater London Authority under section 163 in respect of any disposal by the Authority of any operational land of TfL is unaffected.

Clause 5 enables TfL subsidiaries to give security for borrowing. TfL is precluded by section 13 of the Local Government Act 2003 ("the 2003 Act") from mortgaging or charging any of its property as security for money which it has borrowed or otherwise owes.

Subsections (1) and (2) enable a subsidiary of TfL with the consent of the Mayor to mortgage, charge or otherwise encumber any of its property or any part of its revenues as security for money which that subsidiary has borrowed or otherwise owes or the repayment of which that subsidiary has guaranteed. This includes the power to create a floating charge.

The effect of subsections (1) and (2) is that a subsidiary of TfL may mortgage, charge or otherwise encumber any of its property, or any part of its revenues, provided it has power to do so under its Memorandum of Association. Currently any such power cannot be exercised because, by virtue of section 164 of the 1999 Act, TfL must ensure that its subsidiaries do not do anything that TfL does not have the power to do.

Subsection (3) provides, that where a company whose assets are already subject to a mortgage, charge or other encumbrance becomes a subsidiary of TfL, the existing mortgage, charge or other encumbrance can continue to have effect. The consent of the Mayor is required for the mortgage, charge or other encumbrance to continue to have effect.

Subsection (4) provides a saving for pre-existing charges.

Clause 6 amends section 156 of the 1999 Act so as to enable TfL to become a partner of a limited partnership or to promote and assist, or join with other persons in promoting or assisting, a limited partnership in order to carry on any activities which TfL has power to carry on. This supplements TfL's existing powers under section 156 to form, promote or assist any body corporate, including companies limited by share or guarantee and limited liability partnerships.

Subsections (4) and (5) make consequential amendments to paragraphs 25 and 30 of Schedule 11 to the 1999 Act so as to enable TfL to acquire an interest in a limited partnership under paragraph 25 of Schedule 11 by way of investment.

Clause 7 extends the means by which TfL can carry out activities specified under section­ ˝157 of the 1999 Act. That section enables the Secretary of State to make an order specifying activities which can only be carried out by TfL through a company limited by shares which is either a subsidiary of TfL or a company formed under section­ ˝156 of the 1999 Act. The Transport for London (Specified Activities) Order 2000 ("the Specified Activities Order"), made under section­ ˝157, specifies various commercial activities which are subject to the section 157 restriction. Under section 419 of the 1999 Act TfL has exemption from income tax, corporation tax and capital gains tax but that exemption does not extend to its subsidiaries who are liable to pay corporation tax on their profits in the same way as other companies. The underlying purpose of the Specified Activities Order and section 157 is to ensure that corporation tax is payable on profits arising from the commercial activities specified in the Order. This is achieved by providing that the activities must be carried out through a company which is a subsidiary of TfL or has been formed by TfL under section 156. However, the Specified Activities Order (like section 157) is restrictive in providing that a company through which the activities are undertaken must be limited by shares and registered under the Companies Act 2006.

Clause 7 amends section 157 of the 1999 Act and the Specified Activities Order so as to enable TfL to carry out activities specified under section 157 through a company limited by guarantee which is a subsidiary of TfL or has been formed under section 156 of the 1999 Act or through a limited liability partnership or a limited partnership of which a subsidiary of TfL (but not TfL itself) is a member or partner. Tax will be payable on any profits arising on activities carried out by these means because a company limited by guarantee is liable to pay corporation tax on its profits. Similarly a subsidiary of TfL which is a member of a limited liability partnership or is a partner of a limited partnership is liable to corporation tax on its share of the profits of the partnership.

Clause 8 amends section 49 of the Transport for London Act 2008 which confers powers on TfL's subsidiaries to make arrangements for risk mitigation for the purposes of the prudent management of the financial affairs of TfL and its subsidiaries. Section 49 enables a qualifying TfL subsidiary, with the consent of TfL, to enter into any derivative investment in connection with any actual or prospective asset or liability of a TfL body if the derivative investment is entered into for the purpose of limiting the extent to which any TfL body will be affected by changes in interest rates, exchange rates, commodity prices or other matters specified in section 49(3).

Subsection (2) adds to the list of the matters specified in section 49(3) in respect of which risk mitigation arrangements may be made to include any other economic or market related risk to which any TfL body is subject or any index reflecting any of the other matters specified in section 49(3).

Subsection (3) makes further provision where a qualifying TfL subsidiary enters into risk mitigation arrangements under section 49 for the purpose of limiting the extent of an actual or prospective liability with respect to any pension scheme or arrangement. TfL and certain TfL subsidiaries have funding obligations under the TfL Pension Fund. The new subsection (9B)(a) inserted into section 49 makes it clear that the longevity of the members of the Fund, which is a key factor in the actuarial valuation of the liabilities of the Fund, relevant to assessing the funding obligations, is a matter in respect of which risk mitigation arrangements may be made.

New subsection (9B)(b) of section 49 enables a qualifying TfL subsidiary to enter into arrangements under section 49 for mitigating changes in longevity and other matters specified in section 49(3) even if the arrangements, which are made to limit the exposure of a TfL body to those changes, also have the effect of limiting the extent to which a person other than a TfL body will be affected by the changes. The TfL Pension Fund is divided into sections which apply to different categories of employers. Each section has a specified employer who is under the funding obligations specified in the Fund. TfL bodies are the participating employers for the public sector sections comprising about 99% of the Fund's members. However, the remaining 1% of members are comprised in sections where the participating employers are not part of the TfL Group. The new subsection (9B)(b) of section 49 will enable a qualifying TfL subsidiary to enter into risk mitigation measures as respects matters such as inflation which affect the whole of the TfL Pension Fund rather than just the public sector sections.

Clause 9 makes a minor amendment to Schedule 20 to the 1999 Act.

EUROPEAN CONVENTION ON HUMAN RIGHTS

In the view of Transport for London the provisions of the Transport for London Bill are compatible with the Convention rights.


 
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