The new memorandum of understanding on devolution for London announced in the Spring Budget will see a new infrastructure funding model tested in the capital.
According to the document, the government is to establish a task force that will bring together the GLA, TfL, London Council, the Treasury, Department for Transport and DLCG to explore options for piloting a development rights auction model on a major infrastructure project in London.
This is a part of proposals TfL was asked to bring forwards for financing infrastructure projects from land value uplift.
The memorandum states that should a pilot be agreed, it will be jointly evaluated by London and the government to review its effectiveness and determine if a model such as this could work on other projects.
Such a scheme could be answering calls for a model that sees some of way of taxing the future increase in land values and using this to fund development.
The Land Value Capture report published in February 2017, explained how much new transport investments can add to land values.
It said a sample of eight prospective TfL projects that cost around £36bn, including Crossrail 2, the Bakerloo line extension and the DLR extension to Thamesmead, could produce land value uplifts of about £87bn. However, it said existing value capture mechanisms extract only a small fraction of land value gains from transport investment, in an ad hoc and poorly targeted manner.
The report suggested three ways to capture land value, thorough both stamp duty and business rates, but also through a land value capture charge, which would essentially capture a portion of the premium paid to landowners by new purchasers.
The development rights auctions model was for areas with high development potential. The report listed its key features as:
■ Integrated planning and consenting of land use and density in a defined zone in parallel with the planning of the transport scheme
■ The introduction of a periodic development rights auction, in which development rights over land put forward by landowners are auctioned in assembled packages to a competitive field of developers. Gains above a reserve price are shared between the participating landowners and the planning/auctioning authority.
■ No development taxes, such as CIL or s106, are payable under this scheme.
■ The introduction of a high zonal CIL for those landowners who wish to self-develop
■ The use of reformed compulsory purchase order powers to deal with holdout problems that threaten to stall development
■ The devolution powers announced in the memorandum are also looking into allowing London more opportunity to keep its own business rates.
From April 2017, the GLA will take on responsibility for funding TfL’s investment grant. In return the government London will retain a higher share of locally raised business rates. This will be part of moving towards a 100% retention.
This will be followed by the government exploring more options for granting London greater powers and flexibilities over the administration of business rates, including the voluntary pooling of rates within London.
