Innovative funding model could unlock £4.5bn for new transport projects

Evolving the financing mechanism which supported delivery of the Battersea branch of the Northern Line could unlock billions of pounds worth of investment in new transport projects and drive additional development, according to a report published by London business campaign group BusinessLDN and multi-disciplinary professional services consulting firm WSP.

The new report, ​‘Generating Land Value to Grow London: A New Residential Funding Approach’, recommends building on the tax increment financing (TIF) model which allows by borrowing against future increases in tax revenue resulting from infrastructure projects.

The opening of the Battersea branch of the Northern Line in 2021 was in part funded by a TIF agreement, through which the Greater London Authority (GLA) was able to borrow against future increases in business rates amongst firms benefitting from the extension to support its delivery.

The new report recommends evolving this framework to create a residential TIF model, calling on the Government to empower the GLA to borrow against, and retain, a proportion of future increases in stamp duty and council tax to finance transport projects which directly drive those specific, additional increases. This would reduce the call on public investment for transport infrastructure in London, in turn freeing up extra spending for other parts of the UK.

The study highlights how this model could work across the UK with it being particularly suitable in London due to generally higher land values.

The report maps how the residential TIF model could raise as much as £4.5bn over 25 years to support delivery of three priority projects in Transport for London’s (TfL) business plan: proposed extensions to the Docklands Light Railway to Thamesmead, the Bakerloo Line to Lewisham and the West London Orbital extension to the Overground.

This, says the report, would unlock sites for more than 100,000 new homes and create over 10,000 new jobs. It would also support UK-wide growth, with TfL’s investment in its national supply chain estimated to have been £5.9bn in the 2022/23 financial year alone.

John Dickie, Chief Executive at BusinessLDN, said, ​“Investment in transport is critical to boosting productivity and growth across London and the UK. Against a backdrop of stretched public finances, the Government needs to consider innovative approaches to get shovels in the ground. Letting local government borrow against the future tax revenues that investment will generate, to fund that investment in the first place, is a common-sense way of supporting growth.”

The report also recommends that the Mayor be granted powers to utilise the new residential TIF model, alongside the existing commercial TIF framework, with the freedom to bring the two mechanisms together according to the requirements of different locations.

With local authorities facing significant pressure on their budgets, the report makes clear that the model would only involve drawing a proportion of the additional future council tax on new development resulting from transport infrastructure rather than using existing income. It also highlights other sources of funding that would be needed to share the risk for projects, including Section 106 agreements and the community infrastructure levy.

Chris Whitehouse, Technical Director at WSP, said, ​“Unlocking the value of land and property created by better transport connectivity is key to delivering the homes and infrastructure the UK needs. By evolving proven funding models like tax increment financing, we can enable critical projects that drive economic growth, create jobs, and enhance communities, not just in London but across the country. This report highlights how such an approach can help bridge funding gaps and catalyse the development of transport systems that are modern, sustainable, and responsive to future needs.”