How cities can fund infrastructure without relying on the public purse

Giving cities powers to levy a ‘transport-premium’ charge would help drive transport investment, economic development and house-building

With business rates devolution seemingly on the backburner following the recent Queen’s speech – and no sign of any let-up in local government funding cuts despite recent speculation about the end of austerity – its clear cities are facing an uncertain financial situation in the coming years.

However, as our recent report, ‘How city partnerships make the most of public assets’ illustrated, many cities have already responded in recent years to the constraints of austerity by taking innovative approaches to increase the strategic, economic and financial value of their public land and property.

One development that would give cities more incentives and opportunities to do so is currently rumbling through Whitehall: proposals to give London greater freedom to use transport to drive economic development through new powers over land value capture.

Last year, the government asked Transport for London (TfL) to submit proposals on how London could use land value capture to fund transport projects. A number of options were included in the document, but the ‘transport premium charge’ proposed offered the most equitable and, according to TfL’s analysis, most financially significant model for funding transport investment. The charge would mean that those who get the greatest benefit from improved transport links – firms and residents around the new or upgraded station – would pay more than others. The charge would be paid by existing and incoming businesses, while current residents would be exempt. The Treasury is expected to respond to the proposal by the end of the year.

Many cities around the world use this mechanism or a variation on it to fund infrastructure investments. One example we looked at while researching the city assets report came from Hong Kong. Rather than a tax on other land owners, MTR (the Mass Transit Railway) owns the land above its stations and captures a portion of the economic gains from this investment by developing these sites and collecting rents. It funds the development and running of the province’s transit system by acting as a property developer above new stations, capturing through rent a portion of the huge economic and social gains that the stations bring. In London, TfL is looking to fund a significant portion of the Bakerloo line extension into South East London through housing development around stations.

For those cities where there is a clear need for train, tram or underground networks, the TfL proposal would help them make the most out of their existing assets. It would also offer significant economic benefits for firms by giving them a deeper labour pool, greater jobs opportunities and a quicker commute for workers, and better facilities and access for shoppers and sightseers. Finally, it would create opportunities and incentives for places to build new housing.

In times of austerity with pressures on the public purse, the TfL proposals represent another example of cities leading the way in finding ways to raise funding from non-public sources, to pay for economic development and housing that will benefit lots of people. If the Treasury decides to give TfL these powers, then it should not delay offering them to our other major cities, especially those which have metro mayors.

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Graus Philip
9 July 2017 02:42

Great to see transport authority developing ideas to fund more transport

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