Transport has been dealt the deepest cut to its day-to-day spending of any government department, with the subsidy for London services to be removed entirely.

The DfT’s resource budget will be slashed 37% by 2020. As part of these cuts, Transport for London’s operational budget of almost £700m a year will be entirely wiped out before the end of the decade, leaving TfL to fund its services through commercial investment, cuts or potentially higher fares.

TfL said the cuts to its grant would mean “tough decisions” over fares and investment. It pointed out that the changes would make London the only major European city without a subsidised transport network.



But chancellor George Osborne said during his autumn statement that transport cuts would be offset by money earmarked for infrastructure funding, up 50% from the last parliament to £61bn over the next six years, including 2020-21.



However, much of the spending will go on projects already announced, including starting construction on HS2. The high-speed rail network’s price tag was officially increased in Osborne’s autumn statement to £55.7bn at 2015 prices.

London will still receive a total of £11bn to continue upgrades and new infrastructure, including completing Crossrail. Road-building will account for £15bn in spending, which Osborne hailed as the largest road investment programme since the 1970s.

The chancellor was able to announce that critical rail projects such as the electrification of the Midland mainline and TransPennine routes would go ahead, after they were shelved earlier this year to much outcry in the north.

Network Rail will spend an extra £2.5bn to deliver those projects and others promised in its five-year programme, which was jeopardised by overspending and inaccurate cost forecasts. The bulk of the money, £1.8bn, will be funded by selling off assets such as depots, land under arches and retail space at stations.

A review by the Network Rail chairman, Sir Peter Hendy, said that the majority of promised schemes could now go ahead with additional funds – although some projects would not be completed to the 2019 deadline. Around £700m will come from increased borrowing. The Treasury had been keen to resist this since Network Rail’s debt of £38.5bn came on to its balance sheet on reclassification as a state-owned body last year.

Hendy said the original plan was “unrealistic and undeliverable”, and said of the revised programme: “Some projects will cost more and take longer than originally expected but we will see the job through.”

The suspension of major schemes had threatened to undermine Osborne’s “northern powerhouse” plan, but the chancellor followed up news of the resumption by promising to fund the new Transport for the North body, as more powers are devolved and more integrated networks are developed.

He also pledged to set up a “permanent pothole fund” of £250m to help maintain local roads.

The DfT forecasts that rail franchising will deliver bigger returns to the Treasury than it currently receives. The DfT’s operational budget will fall from £2.6bn this year to £1.8bn in 2019-20. Its departmental administration budget will be cut by 12% in real terms, a slightly less severe cut than the 18% average across government.

London’s transport commissioner, Mike Brown, said the settlement would allow TfL to continue to invest in an improved network but added: “It also recognises the tough decisions we must continue to take to deliver more efficiently for fare and taxpayers, while protecting and modernising frontline services.”