Written evidence submitted by Transport for London [HLV 052]

Introduction

Transport for London (TfL) welcomes the opportunity to contribute to this inquiry. Our input covers all questions posed and draws on firsthand experience of developing and promoting land value capture (LVC) mechanisms.

London needs more transport and housing to sustain growth, however the scale of funding that is required is beyond the current transport funding envelope. Land value capture can play a crucial role in facilitating the delivery of key infrastructure and housing projects.

As the need for funding grows, without alternative funding sources, there is no obvious way of paying for major network upgrades and extensions, other than increasing the burden on general taxation. Land value capture is one such alternative funding source. The Government should continue to work together with the Mayor of London and TfL to consider the potential to use land value uplifts to fund transport investments in the capital.

How effective and efficient are current mechanisms of land value capture in England?

1. Acceleration of housing delivery and unlocking of economic growth in London depends on improved transport connectivity. Emerging housing targets indicate that London needs to build 88,000 homes per year to meet the housing need. While TfL’s public transport investment programme can deliver tens of thousands of new homes to support London, investment is in part dependent on TfL’s and the Mayor’s ability to raise 3rd party funding using LVC tools. Finding efficient mechanisms to extract value uplift from new development is therefore important.  

Community Infrastructure Levy

2. One mechanism that we have found to be successful in capturing some value uplift from new development is the Mayoral Community Infrastructure Levy (MCIL). MCIL was introduced in April 2012 to raise funds for the Crossrail (Elizabeth line) project. It was subsequently replaced by MCIL2 in April 2019. In total, c. £1.5bn has been received from MCIL, MCIL2 and Crossrail section 106 charges[1] to date, with all monies received used to repay Crossrail financing.  

3. The simple charging structure of MCIL, set at a low level and applicable to almost all new developments, made MCIL successful and was praised in the 2016 Liz Peace review of the CIL system[2].  

4. In London, all 35 local authorities, including the two Mayoral Development Corporations (MDCs)[3], have either implemented or are in the process of implementing their own CILs. CIL is an effective mechanism for addressing the cumulative impacts of development on an area. The aggregate annual receipts are now reported as greater than those of MCIL. Local CIL funding is typically used to fund education, parks leisure, public realm, and community projects rather than significant infrastructure improvements, although there are some exceptions (e.g. the Northern Line Extension (NLE), and the Elizabeth line station at Woolwich). CIL and planning obligations have an important function in encouraging communities to accept new development. 

5. A key benefit of CIL as an infrastructure funding mechanism when compared to planning obligations is that once adopted, the contributions are non-negotiable, and a range of powers are available with which authorities can enforce payment. Also, CIL provides certainty for developers so that the CIL cost can be reflected in bids for land. This also speeds up the planning process and provides a more reliable source of infrastructure funding for authorities, although CIL does not capture a significant proportion of value uplift and funding is not sufficient to fully provide the infrastructure necessary to support the development of an area. The Mayoral CIL charge represents circa one per cent of gross development value. The Mayoral CIL charge represents circa one per cent of gross development value[4].

6. MCIL is a broad tool that captures a small proportion of value uplift across Greater London. One of the reasons for CIL’s generally low value capture ability is that the rates have to be set to ensure ‘strategic viability’ of development across an area as a whole, taking into account a range of development types including those that are less viable.  This creates a bias towards setting lower rates. 

Planning Obligations

7. Planning obligations (under Section 106 of the Town and Country Planning Act 1990) are used to ensure that developments meet the requirements of the Development Plan[5] and are acceptable in planning terms. They are negotiated through the planning system using the three legal tests in the CIL regulations[6] to address a range of issues such as the provision of affordable housing, community facilities; construction and transport impact mitigation; and compensating for loss or damage to a community or environmental assets.
8. Planning obligations serve a broad planning function addressing site-specific issues so that development can proceed. If not secured, an application should not receive planning consent in which case any uplift in land value arising from the grant of planning permission will not be achieved. While planning obligations can be seen as a form of land value capture their primary role under the statutory planning framework is to enable the delivery of sustainable development. 
9. Planning obligations make a significant contribution to the delivery of affordable homes in the capital. This aligns with the London Plan, which gives top priority to affordable housing, as well as transport, delivery. By securing affordable housing within new developments (as opposed to off-site), they are also used to deliver the key planning objective of mixed and balanced communities, which CIL and other funding mechanisms cannot achieve. Affordable housing secured through the planning system is estimated to account for half of affordable homes delivered nationally and more in London.
10. In the London Plan (2021) and the Mayor’s Affordable Housing and Viability Supplementary Planning Guidance (SPG) (2017)[7], the Mayor has set out an approach which enables applications to follow a ‘Fast Track Route’ (FTR) where at least 35 per cent affordable homes on sites without public subsidy, or 50 per cent on public land or industrial sites is provided. Where schemes do not meet this minimum threshold, they are subject to detailed viability analysis. This approach provides greater certainty to developers when purchasing land, speeds up the planning process and incentivises the delivery of higher levels of affordable housing. For example, in each of the five years between 2018 and 2023, 35 per cent or more affordable housing has been secured in more than three quarters of applications referred to the Mayor[8].
11. Where an application does not follow the FTR, the London Plan requires early and late-stage viability reviews, with mid-term reviews for larger phased schemes to ensure that affordable housing delivery is maximised as a result of any future improvement in viability.
12. In 2023/24 net affordable housing completions in London were at their highest level since 2011/12, due in most part to the London Plan policy and other interventions. Although, affordable housing delivery has been impacted by successive changes to permitted development rights (such as office to residential conversions) for which no affordable housing or infrastructure contributions are required, and more recently by fire safety regulations, significant build cost inflation and high interest rates which has increased development costs. In response to challenging market conditions, the Mayor has published guidance to accelerate housing delivery in London[9], with the intention that this will be withdrawn when market conditions improve.
13. The Mayor’s SPG (2017) has also set out detailed guidance[10] on development viability to help address issues that have been identified in a range of high profile reports[11]. In particular, this requires that planning obligations are adequately reflected when determining land value in viability assessments. This is to avoid land being purchased at inflated prices based on assumptions of lower affordable housing provision and reductions to other obligations and ensuring that the land price is not then used to argue that a development is unviable[12]. The guidance also addresses this by supporting an ‘existing use value plus a premium’ approach to determining land value which increases the potential for planning obligations to be delivered, and this is subsequently incorporated in a revision to the Planning Practice Guidance (PPG)[13]
14. Section 106 obligations can be better tailored to the viability and values of a specific site than CILs. Due to their negotiated nature they are, however, less predictable than CILs in the amount of infrastructure funding that they can raise.
15. In instances where transport-dependent new development can be easily identified and related to a single ‘anchor’ developer, TfL has had some wider success in capturing value uplift through planning obligations and incremental business rates. Two recent examples are the Northern Line Extension, where 20 per cent of project costs are being met through Section 106 developer contributions and 80 per cent through business rates (captured through an Enterprise Zone mechanism), and the Barking Riverside Extension, where c. 55per cent of project costs are being met through a developer contribution.
16. Section 106 also makes important contribution to other key transport schemes, including new stations, station capacity works and step free access, which helps to ensure London is able to deliver good growth.

Current focus on value capture from new development only  

17. Capturing value uplift using either CILs or planning obligations suffers from a fundamental limitation of both mechanisms only targeting new development. As part of our earlier work in 2017 on land value capture we looked at potential value uplift generated by eight prospective TfL projects. We found that whilst these projects would cost around £36 billion in total, they could produce land value uplifts of about £87 billion[14].  Our report highlighted that the majority of the uplift (circa 75 per cent) would arise on existing properties (largely on existing residential). 

18. Whilst we can capture some of the value uplift on existing commercial properties through incremental business rates (for example in Battersea Enterprise Zone as part of funding the Northern Line Extension) and revaluation growth, at present we do not have land value capture mechanisms that could target existing residential properties.   

Land assembly and compulsory purchase 

19. Typically, in the course of delivering new public transport infrastructure TfL needs to compulsory acquire land. A number of changes have been made to the ‘Compensation Code’ (a set of rules relating to compulsory purchase compensation across a number of different pieces of legislation) which make land acquisition simpler for acquiring authorities. These changes have also made it easier to capture land value uplift resulting from public transport investment.

20. However, the changes to the ‘Compensation Code’ do not go far enough to make land value capture via compulsory land acquisition as effective as it could be for the public sector. Appendix 1 provides further background on this.

What alternative methods of land value capture might be most suitable for England?

1. Would alternative mechanisms of land value capture deliver more affordable housing and public infrastructure than the current section 106/Community Infrastructure Levy regime?
2. How could the benefits of alternative mechanisms of land value capture be realised across England, including regions with lower average land values?

TfL LVC Report 2016/17

1. TfL responded to previous Government consultations on LVC making suggestions about introduction of new LVC tools. In the March 2016 Budget, the Government invited TfL to submit detailed proposals for funding transport projects in the city using land value capture. In February 2017 TfL published its report, which outlined four possible methods of capturing land value uplift resulting from transport investment. The four methods were presented as a package of measures to capture uplift from all major beneficiaries.
2. The four methods were:

• Zonal assignment of transport-dependent value growth in stamp duty land tax receipts
• Full retention of transport-dependent revaluation growth from business rates
• Introduction of a transport premium charge on residential properties within the zone of transport influence
• Introduction of a Development Rights Auction Model (DRAM) to capture value uplift from new development

Zonal Assignment of Stamp Duty Land Tax

3. Stamp duty land tax already captures a small proportion of value uplift at the point of sale. It is not, however, designed to target property value uplift specifically associated with transport investment (the transport premium). A framework for calculating and assigning transport-specific uplift collected through stamp duty land tax could be agreed with the Government.
4. As part of TfL’s Land Value Capture study KPMG/Savills estimated that zonal assignment of stamp duty land tax, as part of a package of reforms, could potentially generate circa £6 billion of funding relative to the £36 billion net present cost of the sample TfL schemes that were looked at as part of the study.

Revaluation in Business Rates

5. This method interacts closely with the Government’s broader business rates decentralisation proposals and the London Pilot of retained business rates. However, if the Government agrees to proceed with full devolution of this tax (rather than the current limited decentralisation) with London – and other places - being able to retain the full revaluation growth and set their own multipliers then land value capture related to commercial property[15] would automatically occur.  
6. The modelling for TfL’s Land Value Capture study indicated that the full retention of transport-specific revaluation growth from business rates could potentially raise circa £6.7 billion in funding relative to the £36 billion net present cost of sample TfL schemes.

Transport premium charge

7. A system of zonal charges on existing residential property would help to close the funding gap for major schemes and enable the public sector to tap into the beneficiary group that, at present, picks up nearly three quarters of value uplift associated with transport investment but makes little contribution to meeting the cost of transport infrastructure that has led to this uplift.
8. Understandably, introduction of such a charge on residential property would be difficult in practice. Its design would have to ensure that it is seen as fair and proportionate to the value uplift enjoyed by the land and property owners. It should also apply at a time when the beneficiary would have the means to pay it.

Development Rights Auction Model (DRAM)

9. The DRAM looks at a way of capturing value uplift arising from new development. The ideas behind the DRAM draw on the ‘rail plus property’ model, which has been successfully implemented by a number of public transport agencies internationally –  for example by the Mass Transit Railway Corporation in Hong Kong.
10. The model requires the preparation of an integrated zonal development plan for zones of influence around new station locations on a new rail project. The auctioning authority, which would have powers to assemble land and grant planning permissions, would coordinate land pooling and auctioning of developable plots. It is expected that as a result of new transport investment and coordinated master-planning, the value of the pooled land would be higher than the value of individual land holdings before assembly. The auction proceeds, above a set reserve price, would then be shared between the landowners and the auctioning authority, which would use its share to fund transport investment.
11. The value capture potential of the DRAM is not as great as that of a transport premium charge, business rates or stamp duty land tax because it targets a smaller beneficiary group. In theory however, it could promote a better coordinated delivery of new development around new transport hubs.

BusinessLDN report on land value generation

12. In January 2025, Business LDN published a report[16] recommending an alternative model of land value generation and sharing that could provide greater level of funding for strategic public transport projects and in turn open up housing development potential across London and beyond.
13. The report recommended building on the tax increment financing (TIF) model which ringfences incremental tax revenues for a set period of time with a purpose to fund infrastructure projects. This approach uses the NLE Enterprise Zone model, which was based on retention of incremental business rates, and evolves it to include residential taxes, namely Stamp Duty Land Tax and council tax (Resi-TIF). This model is premised on targeting only tax revenues associated with new development unlocked by infrastructure projects, thus keeping existing revenue streams intact. The study also calls for the Mayor of London to be given greater freedom to determine how to deploy TIFs (based on both residential and commercial taxes) across London with the aim of stimulating growth and housing delivery. The study highlights how this model could work across the UK and how it could be particularly suitable in London due to generally higher land values.
14. TfL welcomed this report because it recognises how innovative funding mechanisms could help unlock a range of public transport improvements across London. While the report recommendations may need further development and discussion with various government bodies, they helpfully demonstrate 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 and housing delivery.

What are the economic and practical opportunities and challenges of pursuing land value capture policies in England?

1. We have set out in Appendix 2 the advantages and disadvantages of different mechanisms. The table concentrates on the more comprehensive systems of land value capture, and divides them into ones which are based on ownership or development and those which are based around existing or changed taxes. The former could be more suited to support housing development schemes whereas the latter could form the basis for raising significant funds for transport investment.
2. TfL recognises that there is no single mechanism that would be appropriate for land value capture across London and England; the approach adopted will depend on a variety of factors, including the objective of capturing value uplift. The principle of ‘beneficiary pays’ should apply and there is a possible need to rebalance the burden of taxation away from developers and businesses to land and property owners.
3. Land value patterns are very localised and uplifts will depend on the particular transport scheme or planning permission.  So, while the system could be comprehensive, the value captured would vary from place to place – both within London and outside. While land value capture will be more effective in some areas than others at generating revenue, this can help take pressure off other more traditional funding sources and ensure more funding is available nationally from different sources.
4. One of the issues for land value capture is how targeted the mechanism should be.  Funding drawn across a region – like the business rate supplement and Mayoral CIL in London – may pick up some of the uplift.  Broad funding mechanisms are also more stable and may have boundaries that are well understood.  Against that, targeted mechanisms can extract more uplift, with higher amounts paid, but will have boundaries which will require justification to those who will pay.  The 1 km circles used by transport planners have a good conceptual basis and there is evidence that a 1 km radius around new transport links captures the main value and regeneration impact resulting from that transport investment. But they may not appear to be fair if applied as the basis for taxation, although value differentials between properties found within the 1 km zone of influence and outside it are significant. The TfL Land Value Capture report and the Crossrail report by GVA[17] both illustrate this point.
5. Another issue is around whether the payments are annual or transaction based.  Annual flows, like business rates or council tax, tend to be more stable than transaction based payments like stamp duty land tax or CIL.  Stamp duty land tax in particular has had a volatile profile over the last twenty years and would not on its own be a good basis for an investment programme.
6. There is also a general issue is over timing.  Major capital projects, like rail schemes, take time to deliver.  Our 2017 report suggests that the uplifts would occur for residential property only towards the end of construction and would then continue into the operational period.  The funding is needed, however, during transport scheme construction.  On the development side, mechanisms like CIL, which bite at the beginning of a new development being constructed, are a heavier burden, pound for pound, than mechanisms with payments at the end, such as stamp duty land tax.
7. Finally, introducing new land value capture tools, which require legislative change, is generally seen as extremely challenging. There have been previous UK attempts, which were not successful. There is a question of culture and attitude that may need to shift first before any new LVC measures could be introduced. For further thoughts on this please see the ‘Other Observations’ section of this submission.

What mechanisms of land value capture have been effective internationally?

There is a vast body of literature setting out the international experience of LVC and tools. The success of a LVC approach is very much driven by the local context and what is found to be politically and socially acceptable. What might work in one country/region might not be applicable in another. Some Asian models are often cited as examples of how to do LVC well.

Hong Kong – direct land value capture

1. The Mass Transit Railway (MTR) Corporation in Hong Kong is arguably one of the most successful examples of a direct LVC approach. MTR operates a ‘rail plus property’ model, which works by planning new railway line extensions into areas that are suitable for redevelopment and can deliver a significant amount of new property development along the new railway line. The Government owns all land in Hong Kong and grants MTR exclusive development rights over the land above the railways and depots, and along the railway line for a period of 50 years. Therefore, there is no need for compulsory acquisition to assemble land. MTR pays a lease charge for the land to the Government, which does not factor in the value uplift resulting from the new transport project. MTR then sells development rights to private sector developers, having created a comprehensive area masterplan. MTR also shares in profits made by developers from sold residential units before a contractual deadline[18]. This model generates a substantial profit for MTR which enables the Corporation to fund its capital expenditure entirely from internal cash generation.

2. The close relationship between the Government and MTR ensures that MTR does not face competition from 3rd parties when seeking exclusive development rights from the Government and price paid is kept at pre-scheme land value. This model of LVC works well in Hong Kong because the developers are willing to pay premium price for land based on the projected value uplift that occurs because of new public transport project. The majority of people in Hong Kong rely on public transport for getting around so there is a strong captive audience base.

3. While being a very powerful LVC approach in the local geographic context, the model is not easily transportable to the UK because of the difference in land ownership and acquisition regimes. An adapted approach was explored by TfL in 2018 - the Development Rights Auction Model (DRAM). However, because of the high existing use values in London and the need to buy land from private owners (not the Government) at the market value, it was found that DRAM would not generate a profit for reinvestment into transport infrastructure in London. However, in areas where land value differential between existing and future redeveloped use is greater, a DRAM approach may be appropriate.
4. For a ‘rail plus property’ model to be more successful in the UK, the public sector / transport authority needs to be able to assemble developable land around new transport hubs at a lower cost, so that a higher proportion of the value uplift associated with transport investment could be captured for reinvestment. To make that work, this would require four elements:
1. Extend the compulsory purchase powers of transport authorities, so their scope and remit is wider in developing beyond the transport scheme. The alternative requires close coordination with local authorities in using their compulsory purchase powers together with agreement for a substantial contribution from the local authority to the transport scheme arising from the surrounding development that the local authority would bring forward. The ability to bring forward a joint compulsory purchase order with the GLA or an MDC which was introduced under the Neighbourhood Planning Act 2017 could help in certain circumstances, however most major transport schemes in London in recent years have been consented through Transport and Works Act Orders, Development Consent Orders or the hybrid bill and would therefore not be relevant in those circumstances.
2. The ability to acquire at existing use value excluding alternative uses. In addition, the upfront certainty that land can be acquired at that value to ensure that value uplift can be reflected in the funding for the scheme. 
3. The availability of funding to acquire wider land for development and secure the value uplift and contribution to the transport infrastructure.
4. An agreement with relevant planning authorities to allow densification of development around new transport hubs.

Copenhagen – direct land value capture

5. A European example of land redevelopment with a view of capturing a share of value uplift for public needs can be found in Denmark. The country’s Expropriation Law allows the state to acquire land in the public interest at a negotiated price. In 1992, the Danish state set up a development corporation which took over military land in Orestad and redeveloped it for sale. The uplift in land values captured by the state funded the six-station metro line extension that serves the new development[19]. Similar to Hong Kong, this model required significant Government intervention and legislation to enable land acquisition by the state, if deemed to be needed for the public good.

USA – Tax Increment Financing - hybrid land value capture via taxation

6. Tax increment financing (TIF) is a way to hypothecate incremental taxes that arise from economic growth in an area for the purposes of funding an infrastructure project that is a necessary condition for such growth[20]. It is distinct from LVC, which refers to specific situations where infrastructure investment is a necessary condition for an uplift in land values. However, sometimes a significant proportion of tax revenue raised under a TIF would be due to an increase in land values, so TIF could be called a hybrid-LVC tool and so worth a mention here.

7. TIF approach originated in the USA in 1950s and has been widely used by the States ever since. TIF funded the public infrastructure necessary to unlock redevelopment of the Hudson Yards project in New York[21].

8. While not every infrastructure project can be funded via a TIF and care needs to be taken over accurate estimate of incremental tax received unlocked by infrastructure, TIF presents a suitable mechanism to unlock infrastructure investment in the right area. It also does not require land acquisition and is solely reliant on existing tax mechanisms, making it arguably simpler to implement, subject to central and local Government’s agreement to share tax revenue in this way. The Northern Line Extension TIF is working well in London, helping to repay the majority of borrowing associated with this rail extension project.

Should reforms to land value capture be pursued through changes to the current section 106/Community Infrastructure Levy regime, or by introducing a new mechanism?

1. What changes to planning law and guidance would be needed to introduce a new mechanism of land value capture?
2. Would new methods of land value capture be compatible with human rights legislation, regarding property rights?

1. The current developer contribution regime of section 106 for site-specific mitigation and CIL for strategic infrastructure is working well in London. As mentioned in response to question 1, MCIL and Crossrail section 106 have raised c£1.5bn combined for the Crossrail (Elizabeth Line) project. Total receipts have exceeded expectations and have enabled the Mayor to utilise proceeds to repay additional borrowing used for the project. Once the Crossrail debt is repaid, the Mayor would be able to deploy MCIL on other strategically significant infrastructure projects in London that will help to deliver economic growth and new homes.

2. In London, the majority of collecting authorities (34 out of 35) now have their own Borough CILs. As the collection process for MCIL and Borough CILs align, economies of scale on levies administration can be achieved. This ultimately means that more of the collected CILs funds can be used to deliver infrastructure priorities of the local authorities.

3. Any policy change to the existing developer contribution regime is likely to be lengthy and would introduce significant uncertainty for all stakeholders involved, including developers and local authorities. This in turn could slow down the pace of new development, which would go against the Government’s objective to accelerate new housing delivery. A recent example of this is the Infrastructure Levy (IL) which was enacted in the Levelling Up and Regeneration Act 2023. It was unpopular with developers and local authorities as it sought to capture value at the point of sale. It introduced uncertainty around levy payment values and placed an additional burden on local authorities associated with the risk of borrowing upfront against uncertain IL revenues.

4. In our view, there would be no need for a major change to CIL policy, but a review of CIL in-kind policy may be helpful to make it easier to deliver infrastructure in practice. A separate response from the Greater London Authority deals with this point in more detail.

5. MCIL’s strength has been its low charge level, application across most development types and wide geographical base. However, while in combination MCIL and section 106 make a meaningful funding contribution, on their own they are not able to raise enough funding to pay for the majority of public transport investment needs in London. More LVC tools are needed, in particular those that can target a wider base of land value uplift beneficiaries, not just property developers.

6. The fact that MCIL applies across all London boroughs helps to even out annual receipts, but they inherently follow the pace of new development in the city and thus can be lumpy in nature. A LVC mechanism that is charged on beneficiaries on a regular basis (e.g. annually) could complement MCIL and provide a robust base against which the Mayor would be prepared to borrow to finance upfront infrastructure needed to unlock development.

7. Earlier in this submission, we have suggested extending the ability to seek directions to acquire land at existing use value in a compulsory purchase context to transport related development. Our understanding is that under the current procedure for such directions, compliance with human rights legislation would be assessed at the point at which a decision is made as to whether the direction should be confirmed.
   

How could different mechanisms of land value capture complement the Government’s ongoing planning reform agenda, including delivery of New Towns and the release of ‘grey belt’ land for development?

1. Government’s plan to accelerate housing delivery through creation of New Towns and release of ‘grey belt’ land for development is contingent upon infrastructure investment, including public transport, to unlock development sites. New housing delivery cannot happen in isolation from it. Recognising that Government’s and local authorities’ budgets are stretched, it is important to look at new and complementary ways to pay for the needed infrastructure. This is where LVC can be helpful as a supplementary source of funding and we consider there is scope for this approach to be used for network extensions TfL undertakes into the ‘grey belt’.

2. In addition, when land use is changed from agricultural or ‘grey belt’ to residential its value typically increases significantly, often due to the higher demand for residential property compared to other land uses. This results in a substantial jump in market price, when reclassification occurs and subsequently, when planning permission is granted. Unless effective LVC tools are in place, the substantial land value uplift would flow in full to the private landowner.

3. Sharing of the land value uplift therefore becomes a rational approach to solving the uneven distribution of benefits resulting from the public sector’s actions.

4. Looking at the direct forms of LVC, land ownership is the easiest way for the public sector to directly share in the land reclassification value uplift. Given that land ownership tends to be fragmented it is recognised that limited amount of land in New Towns and ‘grey belt’ locations would be owned by central Government or local authorities and so the scope of LVC capture through direct ownership would also be limited unless authorities became much more interventionist in land assembly and in the use of compulsory purchase powers complemented by the acquisition of land at existing use value.

5. The alternative approaches would be to assess the applicability of a DRAM (discussed earlier in this response) or to establish a Mayoral Development Corporation (MDC). A MDC would enable creation of a tailored CIL that would reflect more fairly increased land value and provide a revenue stream that would help to pay for infrastructure needed to support new development.

6. Not many tools of indirect LVC are available to the public sector at present. There is little else apart from CIL on new development. While this effectively shares value uplift between property developers and the public sector, CIL is not able to target other beneficiary groups that benefit from area redevelopment and related infrastructure investment. TfL’s earlier assessment found that the biggest beneficiary group tends to be residential property owners and so, introducing new LVC tools that focus on this group could generate meaningful sums for reinvestment into supporting infrastructure. New taxes or reform of the council tax system (at local or national level) could be considered in this space. The January 2025 BusinessLDN report exploring the residential TIF model also offers interesting ideas on how to encourage land value sharing that TfL supports[22].

Overall, would reforming land value capture support or distract from the Government’s target of delivering 1.5 million new homes by the end of this Parliament?

1. Delivering on the Government’s new homes target will require a significant level of investment into supporting infrastructure, including public transport. No single source of funding could be expected to pay the investment bill in full. Therefore, creation of a suite of LVC tools that in combination could deliver a meaningful funding contribution to meet the investment need is recommended. This would also offer a more innovative and creative solution to the funding challenge and reduce overreliance on any one funding stream, thus spreading the risk.

2. As mentioned earlier in this response, reforming LVC tools that are working well at present, e.g. CIL, would not be advisable as it would introduce uncertainty and potential delays into the market segment that is fundamental to the delivery of Government’s housing targets[23].

3. TfL would strongly support looking at ways to complement CIL in public sector’s LVC toolkit and to introduce new land value sharing arrangements that could help diversify funding streams available for infrastructure investment while leaving some value incentive for the land owners. New LVC mechanisms take time to develop and implement – starting the process now could help to support Government’s housing delivery and infrastructure investment needs in medium- to long-term.

4. TfL would welcome a chance to work with HCLG on what a sensible land value sharing framework could look like in London and how it could form a blueprint for LVC development across the country.
   

Other observations – Lessons from past attempts at LVC in the UK

Development taxation

1. The UK has a long history of attempts to capture land value uplifts for infrastructure funding. As the TfL Land Value Capture study discusses, there were seven attempts by Government between 1945 and 2010 to introduce some form of development taxation:

• The Development Charge (in force 1948-1951)
• The betterment levy (in force 1968-1970)
• The Development Land Tax (in force 1976-1985)
• The mandatory tariff (proposed in 2001, but not implemented)
• The Optional Planning Charge (partially implemented in 2004)
• The Planning Gain Supplement (not implemented)
• The Community Infrastructure Levy (CIL, implemented in 2010 and still in force)
2. The fact that the CIL was the first form of development taxation to be fully implemented in the UK for over 35 years highlights the practical difficulties associated with introducing a tax on value uplift. Most of the development taxes set out above suffered from a lack of cross-party political support, which meant that with a change of Government they were abolished.
3. Past attempts to tax land value uplift tended to focus on new development only. Historic taxes also made no attempt to identify the cause of the value uplift and so could be perceived as quite blunt instruments for value capture if the intention is to capture value associated with, for example, specific transport investment. New development taxes also make landowners reluctant to release land for development and thus incentivise unhelpful behaviour.
4. The two property taxes currently in operation in the UK that could target value uplift on existing property, in addition to the stamp duty land tax, are the capital gains tax and council tax.
5. Capital gains tax (CGT) places a charge on the uplift in values between the acquisition price and subsequent sales price. The tax is levied at the point of transaction, when the seller has the necessary funds to pay the tax. In theory, CGT is the most relevant form of value capture currently available to the Government. However, the tax is not levied on sale of primary residential residences. A vast number of properties that may benefit from uplift in value are therefore exempt from the tax. This limitation makes CGT an inefficient form of value capture in practice.
6. At present council taxes do not respond to value growth at all as neither the property values nor the bands used for tax calculation have been updated since 1991. Growth in values is not reflected in council tax charges. If council taxes were based on regular property revaluations they could become an effective mechanism for capturing uplift in residential property values. The process of revaluation is, however, politically challenging and is likely to face significant opposition from the public.
7. In addition, there have been many changes to compulsory purchase legislation over the years with various assumptions associated with section 5 of the Land Compensation Act 1961 being repealed, re-enacted or amended.  Those changes have reflected the political will at the time.
8. In summary, lessons learnt from the past include:

• To be successful, taxes on value uplift need to have cross-political party support
• To prevent unhelpful behaviour, tax on value uplift in new development should be charged at the point of development occupation rather than at the start of construction
• CGT and council tax may not be the best taxes to extract value uplift from existing residential properties.
9. Previous experience of assembling land in the UK is also relevant. For example, measures such as Comprehensive Development Areas (CDAs) enabled sites in different ownerships to be rapidly assembled, as was the case in Croydon during the 1950s and 1960s. Development corporations have enabled public-led redevelopment of sites. These programmes were underpinned by state investment and the use of statutory powers to assemble land, and put the public sector in a strong position to capture land value increases resulting from the development and investment in transport infrastructure.

Appendix 1: Land Assembly and Compulsory Purchase dimension to LVC

1. Land value in compulsory purchase generally focuses on the market value of the land excluding any value attributable to the scheme which is the subject of compulsory purchase. 

2. When considering the uplift in value on land caused by the scheme, for housing developments, the whole of the land on which there may be value uplift will usually be acquired with only a small possible incidental effect on neighbouring land values.  In contrast, for major transport schemes only a small amount of the land which may have value uplift caused by the scheme will be required for the scheme.  Therefore, the effect of the scheme on the value of neighbouring land is different for housing and transport schemes. 

3. In addition, for housing developments in particular, the price paid by the developer for the land will have a significant effect on the viability of the scheme and, for example, the ability of the scheme to produce sufficient levels of affordable housing. 

4. The ‘Compensation Code’ (the set of rules relating to compulsory purchase compensation across a number of different pieces of legislation), governs the value to be paid for land in a compulsory purchase situation as well as other types of compensation.  Particularly important are the rules under section 5 of the Land Compensation Act 1961 and in particular rule 2: that the value of the land shall be, subject to the other rules, taken to be the amount which the land, if sold on the open market by a willing seller, might be expected to realise. 

5. A large amount of case law has built up around rule 2, in particular: 
1. around disregarding the effect of the scheme on the value of affected property, known as the ‘no-scheme world’ principle.  The Neighbourhood Planning Act 2017 codified that principle as set out further below. 
2. around the assumptions to be made as to planning permission.  This is dealt with under section 14 of the Land Compensation Act 1961 which provides for the taking into account of actual or prospective planning permission.  This will mean potentially paying more for the land than the current use may suggest. 

6. A number of changes have been made in this area recently which will have a positive impact in capturing land value for acquiring authorities.  Sections 15, 16 and 23 to 29 of the Land Compensation Act 1961 were repealed by the Neighbourhood Planning Act 2017.  Sections 14 and 17 were amended by the Levelling-up and Regeneration Act 2023 and now reflect a more realistic position of assessing hope and development value to market conditions outside a compulsory purchase environment. 

7. In addition, section 15A of the Acquisition of Land Act 1981 was introduced which provides for the ability for the acquiring authority to seek directions that existing use value should apply to acquisitions under certain types of compulsory purchase order.  This may allow developments to proceed where there are otherwise issues with funding and viability.  However, the ability to apply for directions under section 15A is limited to certain compulsory purchase enabling powers that are related to housing, education and health.  This has two consequences for transport related schemes:

1. Transport development which supports housing, education or health development cannot benefit from potential directions unless it is included within the compulsory purchase order for the main development under an eligible compulsory purchase enabling power (if that is possible).
2. Transport development generally cannot benefit from directions.

8. It is understood that directions, and the consequential acquisition at existing use value, will need to be justified if that results in a lower compensation payment than would otherwise have been the case.  However, we see no reason why transport development should not be included within the list of enabling powers that would allow directions to be sought if appropriate.  Funding for transport schemes can be complex and many schemes are now funded from a number of different sources.  It is no longer the case that transport schemes are funded solely from capital funding.  We therefore do not see much difference between development supporting education or health and that of transport in terms of the potential justification for directions under s15A.  The ability to apply for directions could be extended to transport related compulsory purchase enabling powers (such as that of Transport for London), Transport and Works Act Orders and relevant Development Consent Orders.

9. In addition, directions under section 15A do not exclude value attributable to planning permission that had already been obtained for an alternative scheme.  This could allow landowners to circumvent the process and secure development value where planning policy would allow it.

10. Finally, directions can currently only be applied for at the same time as a compulsory purchase order.  This means that no certainty in securing value uplift can be obtained until the point at which a decision is made on the compulsory purchase order which is late in the development process and at a point where the funding for the scheme will have been set, including the value uplift which is being sought through the directions. 

11. However, this only addresses capturing the value of land acquired for the scheme and not any resulting uplift in value in surrounding land arising from the scheme.  As outlined above, a large amount of value uplift in transport schemes occurs outside the boundary of the scheme development itself.

12. In conclusion, current forms of planning obligations (with the exception of the Mayoral CIL) and land assembly are not adequate to capture meaningful amounts of value in order to fund transport investment. While changes to national policy in 2019 which removed the section 106 pooling restrictions have helped,[24] more radical mechanisms would be needed to capture land value increases more effectively from investment in transport infrastructure and changes to land use planning designations through land assembly, compulsory purchase and from existing properties.

Appendix 2: Summary of advantages and disadvantages of possible land value capture mechanisms

The table below sets out the relative advantages and disadvantages of possible land value capture mechanisms. It does not seek to advocate any one particular model: 

March 2025