Just under three years ago, one of the capital’s most needed infrastructure projects opened: the Elizabeth Line.
More than 500 million passenger journeys have been completed on the line since then, far higher than initial projections, making it the single busiest railway service in the UK. The line has supported regeneration across the capital through new jobs, homes and commercial opportunities.
Key to getting shovels in the ground in the first place was the decision to proceed with an innovative funding deal.
BusinessLDN helped to broker a package that split the cost between London government, national government and the capital’s business community, with firms willing to pay upfront through taxes for the economic benefits that better connectivity would bring in the future. As a result, roughly 40 per cent of the nearly £19bn cost has been paid for by London’s businesses on top of existing tax contributions.
With Government spending constrained, delivering the critical infrastructure London needs to grow, and support growth across the UK, will require innovative funding solutions, building on what has worked before.
The capital has a long track record of embracing innovative approaches when it comes to projects as varied as the Thames Tideway Tunnel, High Speed 1 and – most recently – the Silvertown Tunnel.
One funding model that could play a bigger role is tax increment financing (TIF), a version of which helped to deliver the Northern line extension to Battersea. TIF agreements enable local governments to borrow against future tax revenues that investments generate to fund those investments in the first place.
In the case of the Northern Line Extension, the Greater London Authority was empowered to take out a loan against a future increase in business rates for firms benefitting from the project to finance its delivery. These kinds of arrangements are well-established in the US. They’ve also recently caught the attention of Parliament’s Housing, Communities and Local Government Select Committee, which has launched an inquiry into their use.
In a new joint report with leading multi-disciplinary professional services consulting firm WSP, with support from Transport for London and London Councils, we make the case for evolving the TIF framework to cover stamp duty and council tax from residential developments made possible by improved infrastructure.
The study details how doing so could raise a proportion of the funding needed – as much as £4.5bn over 25 years – to enable delivery of extensions to the Docklands Light Railway, Bakerloo Line and Overground. Collectively these projects would unlock sites for more than 100,000 new homes and create over 10,000 new jobs.
To make this residential TIF concept a reality, the Government should provide the Mayor with powers to borrow against, and retain, a proportion of future increases in stamp duty to help finance these projects.
The approach could also apply to council tax – either through retaining a percentage of additional revenues or a small, temporary, additional charge. Importantly, the Exchequer would not lose out, as the model would only cover additional receipts that would not have happened without the project they’re helping to pay for, thereby freeing up investment for other projects around the country.
It’s a framework which has the potential to be rolled out across the UK on a case-by-case project basis, with the capital serving as a trailblazer for other regions. Now the Government’s Comprehensive Spending Review is underway, this is the time to think imaginatively, and practically, about ways to realise its ambitious growth agenda.
Embracing a residential TIF financing model could get shovels in the ground on long-awaited infrastructure projects – but it’s not the only missing piece of the puzzle. Transport for London urgently needs a long-term funding deal, similar to those agreed with Network Rail, National Highways and eight city regions, to keep the city connected and drive additional investment.
The Elizabeth line is a huge success story that has transformed the south-east’s economic geography and opened up a vast array of new opportunities along its route. This was only possible because of a creative approach to funding. The Government should now learn lessons from the project and embrace innovative funding approaches – such as the residential TIF – to get our economy moving again.
Muniya Barua is deputy chief executive at BusinessLDN
