Amid the noise around devolution and decentralisation, culminating in this week’s publication of the English Devolution and Community Empowerment Bill, there’s a quieter but more important conversation beginning to take shape: how we finance transformation in the UK’s city regions?
The long-term productivity gap between London and the rest of the country is well known. But what’s less discussed is the missing layer of financial capability that continues to hold many regional leaders back.
It’s not that they lack vision or ambition, it’s that they lack the tools to unlock investment at scale, and despite the moves towards the devolution of power, the financial purse strings are still held tightly in HM Treasury.
Whisper it quietly, but that could be about to change.
Devolution 2.0: How do we finance transformation
Tucked away in the government’s recent infrastructure strategy is a signal that things might be shifting.
The National Infrastructure Strategy and Transformation Agency (NISTA) is set to review how city regions can better leverage private finance to fund strategic infrastructure. The focus will be on models such as business rates retention, land value capture, guarantees, and blended finance linked to transport development.
This move is long overdue.
While major European cities routinely combine public and private capital to deliver housing, transport, and regeneration, most UK cities outside London have found themselves constrained, whether by Treasury rules, institutional caution, or sheer lack of capacity.
But it can work in the UK, look at the Northern Line Extension
One of the clearest examples of how it can work is the Northern Line Extension to Battersea and Nine Elms. The £1.1 billion scheme was financed through a tax increment-style model, underpinned by business rates retention and the increase in land values brought about by new transport infrastructure.
This model succeeded because land values rose sharply as the transport links unlocked development opportunities, backed up by a credible long-term plan, which meant the Greater London Authority could borrow against future income streams with confidence.
But replicating this model outside the capital is much harder.
Cities like Birmingham, Leeds, or Sheffield don’t have the same land values as the capital, meaning that land value capture or business rates retention (as rates are based ont he rateable value of property) don’t have the same potential.
The historical argument has always been that conditions that made these schemes viable in London simply don’t exist elsewhere.
The opportunity for reform
However, the NISTA review could be the moment to change that.
If it is ambitious, it can help codify a new approach to local infrastructure finance and one that’s not just available in London, but accessible across the country.
That means developing clearer, more reliable mechanisms for capturing value, creating new forms of financial guarantee to unlock co-investment, and providing the institutional support needed to help cities deliver.
An important piece of the puzzle could come from the new National Wealth Fund. While much of the early focus has been on its role in directly funding equity in green and strategic industries, it’s remit also enables it to provide guarantees to underpin locally led investment. By offering a national backstop, particularly for projects using land value capture or future revenue streams, the Fund could help de-risk innovative funding models, lower the cost of borrowing, and crowd in private finance in places where the market would otherwise hesitate. This kind of public sector credit backing could derisk lots of projects, making the difference between an idea on a piece of paper and actually getting things financed and built.
But it’s not just as simple as providing financial underwriting. Just as importantly, reform must include a commitment to building local capacity. Many authorities simply don’t have the expertise or bandwidth to develop complex financing packages, nor the legal and institutional backing to manage long-term risk.
If this review is to succeed, it needs to be about capability as well as capital.
Why this matters now
At its core, this is not just a debate about how to fund new train lines or road schemes. It’s a question of how we enable city regions to become genuine engines of growth and address the productivity challenges that have blighted our major cities for decades.
Today’s metro mayors are expected to deliver on housing, transport, skills and regeneration. But all too often, they are doing so with one hand tied behind their back.
To drive productivity, cities need a fiscal architecture that allows them to benefit from the returns on their own interventions. That means being able to capture value when it’s created, to borrow responsibly against predictable revenue streams, and to attract private capital on terms that reflect local priorities.
Right now, that architecture barely exists.
We continue to rely on fragmented funding pots and ad hoc grant allocations, still centrally controlled. This creates uncertainty, encourages short-termism, and deters the kind of long-term planning that’s essential for transformation.
The Devolution Bill is a welcome step forward, but unlocking the financing will be transformative
Outside of Whitehall, there is widespread recognition that we can’t grow the economy and drive productivity with short-term grants and centrally-controlled pots. Productivity growth comes from long-term investment in the assets that drive local prosperity: transport, housing, and skills, primarily.
Luckily, those are the areas which Metro Mayors already have control of, but to deliver real change, cities need more than just permission from Westminster, they need the power to shape capital allocation, to take smart risks, and to capture the benefits of their own growth strategies.
If the government is serious about rebalancing the economy, then the next stage of reform must be financial. This isn’t just about more money, but about smarter money and giving our city regions a stake in their own opportunity.
Over the last few years, the Metro Mayors have shown huge ambition for their regions and have brought a refreshing ‘place over politics’ approach to our national conversation, but sadly, that alone isn’t enough. Because transformation isn’t just about ambition. It’s about the ability to fund it.Find Out More About Devolution
