Chancellor Announces Devolved Financial Powers to Unlock London’s Bakerloo Line Extension and Infrastructure Growth

Key Points

• Fiscal Devolution Deal: Chancellor John Healey has unveiled new devolved powers for regional mayors, allowing London Mayor Sadiq Khan to retain local tax revenues—including business rates and income tax receipts—to fund major infrastructure projects.
• Bakerloo Line Extension Unlocked: The funding model provides financial backing to extend the Bakerloo line beyond Elephant & Castle to Lewisham, creating new underground transport links for South East London.
• New Stations Planned: The proposed Tube extension will feature brand-new stations at Burgess Park and Old Kent Road, alongside a stop at the existing New Cross Gate interchange.
• West London Orbital Progress: The devolution settlement enables the creation of four new London Overground stations between Hounslow and Hendon as part of the West London Orbital project.
• Euston Expansion & Housing: Retention of locally raised taxes will support the regeneration of the Euston knowledge quarter and unlock tens of thousands of new homes, jobs, and regional economic growth.

LONDON (The Londoner News) October 28, 2026 – Chancellor of the Exchequer John Healey today announced landmark devolved tax and spending powers for regional metro mayors, enabling London Mayor Sadiq Khan to retain a share of locally generated business rates and income tax receipts to directly fund major capital infrastructure. The fiscal devolution settlement establishes the financial mechanism to unblock long-delayed projects across the capital, including the multi-billion-pound extension of the Bakerloo Tube line to Lewisham, the expansion of Euston station, and the creation of four new London Overground stations along the West London Orbital route. Hallmarked as a structural shift in regional governance, the initiative aims to drive private investment, accelerate housing development, and stimulate long-term economic growth across London and the South East.

How Will the New Fiscal Devolution Framework Work for London and Regional Mayors?

Under the policy framework outlined by Chancellor John Healey, the Treasury is granting enhanced fiscal autonomy to Sadiq Khan and metro mayors across the country. Rather than relying strictly on central government grant allocations, municipal authorities will retain a higher proportion of business rates and income tax revenue generated within their regional jurisdictions.

As reported by City A.M. and The Independent, the model gives City Hall the borrowing leverage and capital reserves required to finance complex, multi-year transport developments.

Commenting on the devolution settlement, Chancellor John Healey stated: “By giving London the ability to keep more of the money we raise, we can invest billions of pounds more in our future, helping to finally unlock transformational infrastructure projects such as the West London Orbital, the Bakerloo Line Extension and the Euston knowledge quarter project, supporting tens of thousands of new homes, jobs and economic growth.”

Chancellor Healey added: “Proper devolution is something I have been calling for years, and this government gets the scale of the ambition needed where previous governments have failed.”

Mayor Sadiq Khan welcomed the Treasury’s framework, describing the decision as a decisive departure from centralized funding models that previously left capital projects vulnerable to national spending reviews.

What Route and Stations Are Planned for the Bakerloo Line Extension to Lewisham?

The long-awaited expansion of the London Underground network south of the River Thames forms the central centerpiece of City Hall’s infrastructure programme. Historically, South East London has been less served by the Underground network compared to northern boroughs, relying primarily on surface national rail routes.

As reported by City A.M. and confirmed in Transport for London (TfL) planning documents, the extension will run south-east from the current southern terminus at Elephant & Castle down to Lewisham.

The project encompasses:

• Burgess Park: A brand-new underground station located along the northern section of Old Kent Road to serve local regeneration zones.
• Old Kent Road: A second dedicated stop further south along the commercial corridor, supporting thousands of planned residential units.
• New Cross Gate: An interchange station connecting the Bakerloo line directly with existing London Overground and National Rail services.
• Lewisham: A major interchange terminus connecting passengers with the Docklands Light Railway (DLR) and main line rail services toward Kent.

The extended line is expected to significantly reduce travel times into Central London, relieve severe overcrowding on existing bus and rail corridors, and provide capacity for tens of thousands of daily passenger journeys.

How Does the Announcement Advance the West London Orbital and Euston Station Projects?

Beyond South East London, the retention of local tax revenues provides backing for strategic rail and urban regeneration projects in the central, western, and northern sectors of the capital.

According to details published by City A.M., the devolution deal provides the framework for the West London Orbital rail project. The initiative will construct four new London Overground stations on an existing underutilized orbital rail corridor running between Hounslow and Hendon, improving orbital public transit connections across West and North West London without requiring passengers to travel through Central London hubs.

Simultaneously, the financial settlement delivers funding security for the expansion and modernization of Euston station. The project supports the development of the broader Euston knowledge quarter—a life sciences, technology, and academic research precinct—while integrating high-speed rail connections and upgrading underlying station infrastructure.

Background of London Transport Devolution and Infrastructure Delays

The Bakerloo Line Extension has been a central component of Transport for London’s long-term master planning for over a decade. The Department for Transport formally safeguarded the proposed alignment between Elephant & Castle and Lewisham in 2021, protecting the subterranean route from encroaching surface property development.

However, the financial shocks experienced by Transport for London during the COVID-19 pandemic—coupled with subsequent multi-year emergency funding agreements with the central government—forced TfL to place capital expansion schemes on hold. While preliminary feasibility work, environmental assessments, and public consultations were completed, the lack of an agreed long-term funding mechanism prevented the submission of formal Transport and Works Act Order (TWAO) applications.

Similarly, the West London Orbital and Euston station master plans faced years of uncertainty due to shifting fiscal arrangements between City Hall and national authorities. The decision to grant retention powers over business rates and income tax receipts reflects a policy pivot toward fiscal federalism, mirroring funding models utilized by major international metropolitan regions.

How This Development Will Affect London Residents, Businesses, and Housing Markets

The implementation of fiscal devolution and the acceleration of London’s major transport projects will trigger widespread socio-economic and spatial impacts across the capital.

1. Residential Property Development and Regeneration along Old Kent Road

The confirmation of funding for the Bakerloo Line Extension will act as a major catalyst for real estate development across Southwark and Lewisham. Property developers and housing associations that previously delayed construction projects along the Old Kent Road opportunity area are expected to accelerate planning applications. The creation of stations at Burgess Park and Old Kent Road is projected to unlock more than 20,000 new homes and thousands of commercial jobs in historical industrial zones.

2. Enhanced Labor Mobility and Reduced Orbital Congestion

The construction of the West London Orbital will transform orbital travel across outer London boroughs. By connecting Hounslow, Brent Cross, and Hendon directly via London Overground services, commuters will gain faster access to commercial districts without overloading radial routes into Zone 1, boosting employment mobility across West London.

3. Greater Long-Term Municipal Autonomy for Capital Spending

For City Hall and future London Mayors, retaining a share of locally raised tax revenue establishes a predictable, long-term balance sheet. This structural independence will allow Transport for London to issue long-term municipal bonds and structure private co-investment partnerships, reducing the frequency of political disputes between national governments and regional transport authorities over routine capital upgrades.