Tax increment financing has been highly successful in the US and could soon be coming here. Sarah Whitney is a keen advocate None of the words in ‘tax increment financing' (TIF) – the public financing method which has been used for redevelopment and community improvement projects in many countries – are banned jargon. So why will almost no-one in public office use the phrase? Last month, chancellor Alistair Darling's Budget report announced a study of TIF in all but name. The Conservatives, in their recently-published Green Paper Control shift, promised to introduce something which sounds remarkably similar. The Local Government Association, meanwhile, has listed not one of those three words among its 100 pieces of jargon to be banned – perhaps because its members have the most to gain if TIF becomes established. In short, they see the localist value. Forget the headlines about the 50% tax rate – and put to one side the deferral of the community infrastructure levy (CIL) to 2010. So far as the regeneration and property sectors are concerned, the announcement might be the most far-reaching in the whole of the Budget report. For those who have not read the relevant paragraph, the Government promises to ‘work with interested local authorities and city-regions to assess the scope for accelerating development by allowing investment in infrastructure to be financed from the increased property tax base that could be enabled by the existing improved infrastructure'. The results will be announced this autumn in the next pre-Budget report. Introduction of this measure is urgent. A queue is building up of local authorities and projects willing to volunteer. Scotland is not nervous about being the UK's guinea pig, once again, in the shape of Edinburgh City Council. With a raft of other councils eagerly lining up to take part, not to mention half-a-century of success for the model in the US, it is arguable that a pilot exercise is needed. Let us assume that the business rate supplement (BRS) becomes law. Let us also assume that the CIL survives through to its delayed introduction. Even combined, they lack the money-raising power of TIF. How much overlap is there between the economic development sought by BERR and the regeneration championed by CLG? Take the site clean-up, essential for a mixed-use development of homes and employment uses. If that is not economic development, then it is even more essential that a big-money alternative to BRS exists. The value of TIF is not merely its ability to raise significant sums over long time spans. It does so without discouraging business from locating or growing in the target neighbourhood. Unlike the rate supplement, a TIF requires no vote in favour from large businesses – a vote misspelt ‘veto' by some commentators. Only the growth enabled by TIF-funded infrastructure is ‘taxed'. If the business community doesn't benefit, it doesn't pay. Neither should TIF-funded regeneration waste money needlessly subsidising private sector investment. Like BRS, TIFs are designed to be used only where investment would not otherwise happen. It would be stretching the truth to say that there was cross-party support for TIF. Still, Budget announcements aside, the Conservatives' Green Paper promises to ‘give local authorities the right to retain the financial benefits arising from new business activity in their areas'. With the Government now committed to engaging local authorities and the new pilot city regions on regeneration funding, the conversations which take place must be as frank as possible. Instead of talking about broad principles, discussion should be around the practicalities of bringing in TIF arrangements. What infrastructure needs to be funded? How long will be needed to recover the costs? How can local authorities be freed to raise money through bond issues? Answering each correctly might not only enable the kick-starting of projects caught up in the recessionary logjam. It might also resolve that missing bit of the localism jigsaw – how best can we raise funding as close as possible to the point of delivery. Sarah Whitney is managing director of the regeneration and development team at CB Richard Ellis
