A new funding model, pioneered by Westminster City Council, is set to allow local authorities to unlock private investment for urban regeneration.

The council is on the brink of signing a deal with the Grosvenor Group, the international property firm owned by the Duke Of Westminster. The authority will lend £10m of its Local Authority Business Growth Incentive (LABGI) grant for improvements to public streets around its holdings in the West End.

Grosvenor's core portfolio comprises 120ha of prime central London real estate in Mayfair and Belgravia, which falls under the council's control. The company will carry out improvements to the public streetscape and pay Westminster back in five years' time.

The aim is to deliver distinctive improvements to public spaces which enhance ‘place' – a key issue from the Lyons report. The council argues that using a percentage of business rates to kick-start major projects will drive job creation and deliver major infrastructure projects at a lower cost.

Leader of the Westminster City Council, Sir Simon Milton, said: ‘This will revolutionise how the public and private sector operate. We've both got a vested interest in improving our streets, but instead of going with a begging bowl, we can unlock significant amounts of investment at little cost to the council. It's a win-win situation for all.'

Peter Vernon, Grosvenor's executive director for London said the deal was critical to its future strategy and businesses which operate in the country's most prestigious retail areas.

He said: ‘The funding arrangements are innovative as they do not place a burden on the council, and the long-term improvement in the value of our holdings means Grosvenor is able to fund public realm improvements that would normally be borne by the local authority.'