Innovative Funding Model Could Unlock £4.5 Billion for New Transport Projects, Says BusinessLDN and WSP Report

A new report by BusinessLDN and WSP proposes an innovative funding model that could unlock £4.5 billion for new transport projects across the UK. Building on the tax increment financing (TIF) model used for the Northern Line extension, the report, “Generating Land Value to Grow London: A New Residential Funding Approach,” recommends a residential TIF model to leverage future increases in stamp duty and council tax.

The report highlights the success of the commercial TIF model, which allowed the Greater London Authority (GLA) to borrow against future business rate increases to help fund the Battersea branch of the Northern Line. It proposes evolving this framework to allow the GLA to borrow against a proportion of future increases in stamp duty and council tax generated by new residential developments enabled by transport projects.

This new approach would reduce the reliance on public investment for transport infrastructure in London, freeing up funds for other parts of the UK. While applicable nationwide, the model is particularly suited to London due to higher land values.

The report identifies three priority projects in Transport for London’s (TfL) business plan that could benefit: Docklands Light Railway extension to Thamesmead, Bakerloo Line extension to Lewisham, and West London Orbital extension to the Overground. These projects could unlock sites for over 100,000 new homes and create over 10,000 new jobs, while also boosting the UK economy through TfL’s national supply chain, which totaled £5.9 billion in 2022/23.

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. This model has the potential to be applied across the UK, including London where it could help to get key projects – such as extensions to the DLR and Bakerloo lines as well as the Overground network – off the drawing board and unlock new homes, create skilled jobs and spur growth.” 

The report recommends empowering the Mayor of London to utilize the new residential TIF model alongside the existing commercial TIF framework. It emphasizes that the residential TIF model would only draw from additional council tax generated by new development resulting from transport infrastructure, not existing income. Other funding sources, such as Section 106 agreements and the Community Infrastructure Levy, would also be needed.

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.” 

The Housing, Communities and Local Government Select Committee is currently investigating how land value capture can support the government’s goal of building 1.5 million new homes.

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