Billions of pounds to help pay for extensions to London’s Tube network could be unlocked if the Government granted Sir Sadiq Khan new fundraising powers, a major business group has argued.
In a new report, BusinessLDN has called on ministers to allow the mayor to raise money for projects like the Bakerloo line extension to south-east London or Docklands Light Railway (DLR) extension to Thamesmead, essentially by “borrowing against” the schemes’ future economic benefits.
The group points out that improvements to transport in different parts of London - such as the opening of the Elizabeth line in 2022 - have increased the value of homes in those places and made them more attractive for businesses.
Their report argues that the Government should therefore allow Transport for London (TfL), under the leadership of the mayor, to borrow money to pay for Tube and railway extensions - on the understanding that the funding will later be paid back using the local tax windfall resulting from those projects.
To gather up that windfall, the mayor would need to be empowered to collect a proportion of locally-paid residential taxes, like Stamp Duty Land Tax, as well as the extra business rates generated in the area.
This funding mechanism is a type of ‘land value capture’ known as ‘tax increment financing’. A version of it - focused on business rates - was used to partly-fund the Northern line extension to Battersea Power Station.
According to modelling in BusinessLDN’s report, the mechanism could be used to raise more than £4.5bn over 25 years to help cover the costs of three key projects.
For the Bakerloo line extension, the report says that up to £2.2bn could be raised, and about £1.5bn for the DLR extension. The report adds that a further £1bn could be raised for the West London Orbital scheme, which is a proposed London Overground line running from Hounslow up to Hendon.
John Dickie, BusinessLDN’s chief executive, 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.”
A TfL spokesperson said: “We welcome this report by BusinessLDN which identifies a number of potential ways in which innovative funding mechanisms could help unlock a range of public transport improvements across London.
“While these may need further development and discussion with various Government bodies, it helpfully demonstrates that by identifying wider funding opportunities, key transport schemes which would deliver growth and opportunities across the city could be funded more easily and support the wider UK economy.”
The Government was approached for comment.
