In 2007 SPF identified the opportunity in Scotland for Scottish Ministers to take the initiative on Tax Increment Financing (TIF). Picking up from research undertaken by our colleagues in London in 2008 we added to this and wrote to many potential local authorities to suggest leading the way on TIFs in the UK. This same year City of Edinburgh Council had already announced its intention to establish a TIF to help deliver key development at Edinburgh Waterfront.
TIF has been a popular form of regeneration funding in the United States for decades, and the Scottish Government has already given support for Scotland’s first pilot TIF schemes, to be led initially in Glasgow (the Buchanan Quarter).
What's the issue
TIF can offer a solution for regeneration projects which depend on the delivery of a piece of infrastructure for which funding cannot be found from other public or private sources. TIF allows more upfront money to be raised by committing incremental business rates – i.e. revenues which would not have arisen but for the project going ahead – to be used to repay that initial investment. It isn’t going to help every worthwhile project, but it will allow some stalled schemes to go ahead. The current proposals in Scotland range from new town works (Ravenscraig) to waterfront regeneration (Edinburgh) to new transport interchange development (Buchanan Quarter, Glasgow).
The Scottish Government is proceeding on the basis that TIF does not require new primary legislation, at least for a limited number of pilot projects. There is secondary legislation passed recently by the Scottish Parliament which can enable Scottish Ministers to allow the retention of identified business rate revenues for the TIP project.
The current Scottish projects are backed by prudential borrowing undertaken by local authorities and originated from the UK Public Loans Works Board. Proposals are worked up in conjunction between local authorities and private sector landowners and developers, with a business case then submitted to the Scottish Futures Trust to analyse. Ministers decide to approve proposals based on the advice of the SFT and Scottish Government officials.
Why is it important
TIF is particularly important in the current austerity climate, because public funds for capital investment have dried up, and private sector uncertainty about the strength of the occupier market and wider economy mean that the developer contributions available (for example through section 75 planning agreements), are also much more modest than they were a few years ago. We would therefore like to see the impetus for jobs and investment that TIF could deliver sooner rather than later and in many cases 'but for' publicly backed TIF arrangements, development may not happen at all in the forseeable future.
What we're doing about it
In Scotland we continue to make a strong case for the use of TIF where appropriate. We raise the profile of TIFs with members and other businesses and commentators, seeking to dispel concerns that it is a new form of business rate supplement. We liaise with parties interested in TIFs and with SFT on a regular basis.
We are keeping in close touch with colleagues at BPF who are lobbying the UK Government. Ultimately if TIF is to be a widely used tool for regeneration we expect that it will need changes to investor regulations in order to attract private sector financial commitment.
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