Sadiq Khan Sparks Labour Row with £3bn London Overground Contract

London Mayor Sadiq Khan has sparked controversy within the Labour Party after awarding a £3 billion contract to FirstGroup to operate the London Overground, a decision that appears to contradict Labour’s pledge to bring railways back under public ownership.

On Tuesday, the transport company listed on the London Stock Exchange announced it would manage the city’s 104-mile above-ground rail network for up to ten years starting in May 2026. David Thomas, a London transport official, described the deal as capable of providing “a range of benefits” for commuters, including service improvements and greater operational efficiency.

However, as chair of Transport for London (TfL), Khan faces scrutiny for greenlighting the contract, which many perceive as a slight against the Labour government, particularly in the same week it unveiled the branding for Great British Railways, the state body spearheading Labour’s nationalisation plans for the UK rail network.

Elly Baker, chair of London’s Transport Committee and a Labour member of the London Assembly, urged Khan to ensure the capital aligns with nationwide rail reforms. While she acknowledged that outsourcing services such as the Elizabeth Line and the Overground has improved service quality, Baker argued that TfL should consider renegotiating private contracts to regain full control of the network. She told City AM:

“We need to ensure that London keeps pace with rail reform in the rest of the country and the creation of Great British Rail by the Labour government, both in terms of the funding provided for services going directly to services, and direct accountability to Londoners. I recognise the constraints TfL are operating under, but I would welcome a future contract review in favour of TfL running these lines directly.”

The RMT union criticized the deal as “beyond belief,” highlighting the contrast with the Labour government’s recent steps to bring railways into public ownership. RMT general secretary Eddie Dempsey said:

“Despite the Mayor saying he backs public ownership of rail, the London Overground is being re-privatised on a lucrative eight-year deal that puts profit before passengers. This is another outrageous decision, landing on the same day we learn that cleaning staff are to be outsourced again despite previous commitments to bring them in-house. We will oppose any attempt by TfL to secure devolved control over publicly owned Great British Railways services while it continues down this path.”

Labour’s manifesto last year promised to bring railways back into public ownership as current contracts expire or are terminated, and stated that mayors would play a role in shaping services within their areas. TfL’s contract with Arriva Rail London was due to expire next year, raising questions about whether the transport authority would take over operations from May 2026.

Part of the Overground, formerly known as the East London line, was previously managed by TfL before being outsourced in 2007. FirstGroup has now been selected as the preferred operator at a time when other lines, including South Western Railway and East Coast Main Line, have returned to public ownership following last year’s election. Khan’s 2024 manifesto did not propose ending private concession contracts.

London-based rail historian Christian Wolmar told City AM that the decision is puzzling and potentially costly:

“They have failed to learn from experience that these management contracts are not necessarily more efficient than directly running organisations. I’m bemused by it – I don’t see how it will save money,” he said, noting that TfL might be avoiding taking the contract in-house to sidestep industrial relations responsibilities.

Some analysts suggest that the deal reflects the financial pressures TfL is facing following years of reduced government funding and revenue losses from the pandemic. Private operators can provide upfront investment and risk-sharing that the public sector may struggle to match, although critics argue that this prioritises profits over service quality.

A Downing Street source emphasized that the agreement does not violate the Labour manifesto, since the Mayor’s devolved powers were not included in the party’s pledges. It’s also reported that other UK city authorities are exploring extensions of private transport contracts.

Meanwhile, commuter groups and London residents have expressed mixed reactions. While some welcomed the promise of continued service improvements and reliable timetables, others voiced concerns that handing the network back to a private operator could result in higher fares or reduced transparency.

The Department for Transport, the Mayor’s office, and the Labour Party have not commented.