A key theme of the recent Lyons Inquiry on Local Government was that the centre needs to give local actors more flexibility to deliver economic development. Lyons is right. And, as the All Party Urban Development Group has recently shown, the financing of transport infrastructure is a case in point. If the Government wants to create a transport system capable of delivering on the demands of our economy then it needs to devolve. Centralism isn't working. Local problems need local solutions. And local actors need to be given the financial tools to deliver them.

Speak to city leaders or large scale commercial developers about the barriers to infrastructure delivery and you'll hear three main complaints: the financing framework is too fragmented, strategic coordination is weak, and the system is too centralised.

First, the number of funding streams involved in the delivery of transport infrastructure needs to be reduced. The Department for Transport, the Treasury, Regional Development Agencies, local authorities, the EU and many others may all be involved in a single transport project. This makes it difficult for local and regional decision-makers to package up the funding streams needed to deliver transport schemes.

Second, strategic coordination between central, local and regional actors needs to be improved. A coherent strategic approach is the least that we should expect of public agencies. But, often this isn't the case. Priorities frequently clash, leading to confusion and delay. Public sector disagreement about Crossrail is the most obvious example of this, but there are plenty of others - such as Manchester Airport's Ground Transport Interchange or Birmingham's New Street Station.

Third, and most important, the Government needs to devolve. City leaders tend to have a better understanding of their economic development needs than their Westminster and Whitehall counterparts. But central government restricts their capacity to act by tightly controlling infrastructure funding levers and limiting councils' ability to raise revenue independently. This means that local authorities are often unable to forward fund infrastructure - resulting in a development stalemate, whereby local authorities find it hard to attract private sector investment because the required infrastructure is not in place.

Two types of reform are needed. The first is that Westminster needs to devolve power down to the right geographic level. For example, in Greater Manchester local authorities recognise that it's counterproductive to have multiple councils involved in the delivery of strategic infrastructure. City regional or sub-regional governance structures, with control over transport and economic development functions would be more appropriate. The recent Local Government White Paper's recommendation on Multi-Area Agreements - where local authorities could pool certain powers in return for increased funding - could provide a vehicle for this. And the commitment to re-examine local transport governance in the forthcoming Road Transport Bill is also a step in the right direction.

The second type of reform relates to infrastructure financing options. What mechanism would be most effective in giving our cities and towns the financial autonomy necessary to deliver on key local transport needs?

Some have suggested that the Government's proposed Planning Gain Supplement (PGS) - a tax on the land value uplift associated with the granting of planning consent - will enable local authorities to finance key transport infrastructure needs. But there are serious question marks about this. First, if introduced, PGS is predicted to be revenue neutral - meaning that there will be no additional money to finance infrastructure investment. Second, while the PGS take is calculated at the point when planning permission is given, it is only collected after the completion of a development - meaning that it might not help local actors forward fund infrastructure.

A better option, highlighted by the APUDG report, is Tax Increment Financing (TIF) - where decision makers borrow against the tax revenue increase expected to follow a public investment. TIF is used widely in the US and Australia, and to good effect. It's certainly worth considering here too. TIF would give local decision makers considerable flexibility and it would go a long way towards solving the problem of forward financing. However, the Lyons Inquiry steered clear of a recommendation on TIF. The problem is that the Treasury would probably have to underwrite any loans that were taken out by local authorities - which seems improbable given the Government's approach to fiscal management.

More realistic is Sir Michael's call for Supplementary Business Rates (SBRs). With SBRs, local decision makers would, in consultation with the private sector, be able to introduce geographically limited business rate increases of up to 4p in the pound. They could then use the revenues generated to finance transport infrastructure investments. Importantly, SBRs might also help to promote a more pro-business attitude among local authorities by giving councils a more flexible tool to build up their relationships with the private sector.

Cities, business leaders and Ministers now need to reach agreement on how SBRs will work. SBRs could give England's cities an innovative and effective tool to deliver transport infrastructure like Manchester Metrolink Phase III or the redevelopment of New Street Station. With Lyons, the APUDG and others supporting their introduction, it's time to see what SBRs can achieve.

Our transport system is struggling to support our economic growth. Meaningful devolution to our cities can help us rise to the challenge of improving it. The Government must use this autumn's Comprehensive Spending Review to give local government the financial tools that will allow them to deliver.

The Centre for Cities conducts independent research on behalf of the All Party Group on Urban Development.