Mayor of London Granted Sweeping Devolution Powers for Bakerloo Line Extension and Euston Station Upgrade

Key Points

• Major Transport Powers Devolved: London Mayor Sir Sadiq Khan will receive unprecedented fiscal and planning powers to deliver the long-sought Bakerloo Line extension and a comprehensive upgrade of Euston station.
• Fiscal Autonomy Expansion: The British government’s devolution strategy will permit metro mayors to retain local income tax growth receipts, levy business rate supplements, and utilize Tax Increment Financing (TIF) to fund public infrastructure.
• £10 Billion Borrowing Capacity: Estimates indicate that the newly granted tax-retention mechanisms will unlock roughly £10 billion in additional borrowing capability for London’s City Hall to advance major capital projects.
• Expanded Transport Portfolio: Beyond the Bakerloo Line and Euston, the Mayor will be empowered to advance the West London Orbital Overground network and explore transforming Stratford station into an international cross-Channel rail hub.
• Policy Paper and Budget Integration: The policy framework, described by sources close to City Hall as the largest transfer of power out of Whitehall in a generation, forms a central pillar of Chancellor John Healey’s Budget and wider regional growth policy.

LONDON (The Londoner News) October 28, 2026 – London Mayor Sir Sadiq Khan is to be granted historic fiscal and transport powers to deliver the long-delayed Bakerloo Line extension, a major overhaul of Euston station, and additional regional rail networks as part of the UK government’s major devolution push. Under new financial mechanisms unveiled alongside Chancellor John Healey’s Budget, metro mayors across England will be permitted to retain locally generated income tax receipts and deploy Tax Increment Financing to fund capital infrastructure. The policy package—heralded by City Hall insiders as the most significant transfer of administrative and financial authority out of Whitehall since the creation of the London mayoralty—is expected to generate up to £10 billion in new borrowing capability for capital investment in the capital.

What Transport Infrastructure Projects Will Sir Sadiq Khan Deliver Under the New Devolution Powers?

Under the new policy framework, Mayor Sir Sadiq Khan will gain the statutory and financial leverage required to unblock several of London’s most critical infrastructure bottlenecks.

As reported by City AM, sources familiar with the matter confirmed that Khan will use the expanded borrowing capacity to move forward with the extension of the Bakerloo Line. The long-advocated transport project involves extending Underground service south-east from Elephant and Castle down to Lewisham. The extension plan includes:

• Constructing new underground stations at Burgess Park and Old Kent Road.
• Delivering a major interchange station at New Cross Gate.
• Terminating the initial extension phase at Lewisham to integrate with national rail links.

In addition to the Bakerloo Line, the new fiscal tools will allow City Hall to progress the West London Orbital project, which entails creating four new London Overground stations along a rail corridor connecting Hounslow and Hendon.

The devolution package also directly addresses long-standing funding and governance uncertainties surrounding Euston station. A £50 million upgrade project at the terminal—which has faced intense scrutiny regarding financial backing ahead of the planned arrival of High Speed 2 (HS2) rail services—will now fall under enhanced local management, allowing Khan to raise and invest dedicated sums to redevelop the hub. Furthermore, Stratford station in East London will be highlighted in Chancellor John Healey’s Budget as possessing the potential to become an international travel hub, following proposals revealed by Khan to run cross-Channel passenger services directly from the terminal.

How Will the New Fiscal and Tax Retention Framework Work for Metro Mayors?

The central mechanism of the government’s devolution push relies on shifting tax-raising and financing authority directly to English regional leaders.

As reported by City AM, the policy framework detailed alongside Chancellor John Healey’s Budget outlines a multi-tiered financial strategy that enables metro mayors to reap the financial benefits of locally generated economic growth. Key financial levers include:

1. Local Income Tax Retention: Mayors will be allowed to retain a higher proportion of rising local income tax receipts generated within their administrative boundaries.
2. Business Rates Supplements: Regional authorities will receive expanded powers to levy supplementary business rates on commercial properties to directly fund localized infrastructure schemes.
3. Tax Increment Financing (TIF): The government will authorize the formal implementation of TIF schemes. This public financing model allows municipal governments to borrow against anticipated future growth in property tax revenues generated by specific regeneration and transport developments to cover initial capital construction costs.

Estimates cited by industry sources indicate that the expanded tax mechanisms will grant Transport for London (TfL) and the Greater London Authority (GLA) an additional £10 billion in borrowing capacity. This financial buffer is designed to eliminate the historic requirement for London mayors to seek direct, project-by-project capital grants from the Treasury.

Reflecting on the scale of the transfer, a source close to the Mayor of London stated to City AM that “this is real devolution that we haven’t seen since the start of the mayoralty in its modern form”.

How Does This Move Fit Into the Government’s Wider Regional Growth Strategy?

The granting of expanded financial autonomy to London forms part of a broader national policy shift aimed at dismantling centralized control over regional development.

As reported by The Guardian and City AM, the overarching devolution strategy represents a collaborative effort between the Treasury and prominent regional leaders, including Greater Manchester Mayor Andy Burnham. Framed by supporters as the “biggest transfer of power out of Whitehall in a generation,” the policy is positioned as a primary engine to stimulate national economic growth by empowering local decision-makers who understand regional economic drivers.

In a full government policy paper published alongside the Budget, ministers outlined how giving metro mayors direct control over local tax bases and long-term borrowing removes civil service bottlenecks that have historically delayed major UK civil engineering projects for decades. By pairing London’s infrastructure expansion with similar tax-retention models in the Midlands and Northern city-regions, the government intends to create a standardized financial architecture for urban transport throughout England.

Background of the Devolution and Infrastructure Funding Drive

The announcement of direct fiscal devolution marks a pivotal turning point in a decades-long struggle between central government and regional authorities over transport funding. Since the modern creation of the Greater London Authority and the position of Mayor of London in 2000, City Hall has relied heavily on operational farebox revenue, local business rate levies, and discretionary capital grant allocations from the Treasury to fund network expansions.

This financial structure was severely disrupted during the COVID-19 pandemic, which caused public transport ridership to plummet and forced TfL into a series of emergency, short-term bailouts with central government. The strict conditions attached to those emergency funding packages led to severe capital shortfalls, forcing TfL to place several long-planned capital projects on hold—most notably the Bakerloo Line extension, which had its route safeguarded by the Department for Transport in 2021 but lacked a secured multi-billion-pound construction budget.

Concurrently, regional leaders across England, led by Greater Manchester Mayor Andy Burnham, systematically campaigned against the traditional “cap in hand” model of local government finance. Regional mayors argued that requiring Whitehall approval for individual local transport lines created extreme delays, increased construction inflation, and stifled economic growth. The publication of the 2026 Devolution Policy Paper represents the formal codification of those campaign efforts into national economic policy.

Prediction: How This Development Will Affect Property Developers, Commuters, and Regional Businesses

The historic transfer of financial and transport authority to the Mayor of London is poised to generate structural shifts across real estate markets, public transit users, and the wider UK business sector.

1. Urban Regeneration and Property Market Surge in South-East London

The confirmation of fiscal backing for the Bakerloo Line extension will immediately alter commercial and residential property dynamics along the designated route. Developers operating along the Old Kent Road, Burgess Park, New Cross Gate, and Lewisham corridors are likely to accelerate land acquisitions and planning applications. With Tax Increment Financing relying directly on future commercial rates and property value growth, City Hall will actively encourage high-density residential and commercial developments around proposed station sites to secure the revenue needed to service capital borrowing.

2. Reduced Capital Dependency and Enhanced Service Reliability for Commuters

For London transit users, shifting TfL’s financial foundation away from Treasury grants toward local tax retention and long-term borrowing provides unprecedented operational stability. Commuters in South-East and West London will gain access to direct rail links that significantly reduce travel times into central business districts. Furthermore, resolving the funding deadlock at Euston station will allow for smooth integration with high-speed national rail lines, minimizing service disruptions and overcrowding at major terminal hubs.

3. Increased Business Rate Certainty and Infrastructure Delivery for Commercial Enterprise

While commercial enterprises may face localized business rate supplements to fund specific infrastructure corridors, the business community will gain long-term certainty regarding project delivery timelines. Engineering firms, construction contractors, and logistics suppliers will benefit from a predictable pipeline of major public works projects. Additionally, developing Stratford into an international rail hub will enhance international connectivity for businesses operating in East London and the financial district, driving corporate investment across the capital.