PLC Public Sector reports:
A recurring message coming from the Government is that communities (and therefore local authorities) need to be at the forefront of helping people to combat the effects of the recession. Whether it be opening up empty shops to the public to save the high street or creating new city-regions, the Government has promoted a range of initiatives under the banner of decentralisation.
However, the Government’s response to an idea imported from the USA with high profile local authority and private sector support may give a more accurate indication of how flexible the Government is willing to be.
Tax increment financing (TIF) involves local authorities raising money for major projects through bonds, which will be repaid using future business taxes collected from what the project delivers. This method of raising finance does still have questions to answer:
- some claim that it is too risky to use to raise public finance, especially given the blame for the current recession being passed to irresponsible, risk-taking bankers. What happens if the expected level of business rates does not transpire?
- others claim it is simply another way of making money for the private sector.
However, it has worked in the USA and has the support of councils such as Manchester (one of the new city-regions), Liverpool, Birmingham and Newcastle. In addition, the British Property Federation have included the scheme as a key element in their manifesto to kick-start regeneration out of the recession. The Government is yet to conclusively commit to the idea, but it has not yet discounted it either. In fact, there have been suggestions that the Government will announce a TIF pilot in the autumn pre-budget report, using Transport for London as a guinea pig.
TIF does seem to give local authorities greater revenue raising powers with potentially less control or interference from central government. It will be interesting to see not only if the method of financing receives Government support, but also any controls the Government seeks to place on it if the go-ahead is given. It could just give an indication of the Government’s real commitment to decentralisation.
One further point included in the BPF manifesto is a call for the Government to give clearer guidance following the decision in Auroux on the relationship between development agreements and the public procurement rules. This is a sensible request. There is undoubtedly some confusion in this area and if the private sector is to play a role in taking the UK out of recession, it needs to be able to rely on public sector bodies across the UK taking the same approach to the application of the procurement rules.
More than a year on and Nick Clegg has announced that local authorities in England will indeed be given the power to use TIF to borrow money. There are still many questions that will need to be answered about how the new power will be operated/controlled, most obviously, any caps which will apply to the use of TIF by local authorities and any necessary approval process.
Answers to these questions are promised in the government’s forthcoming white paper on sub-national growth, which should be published “around the time of” the comprehensive spending review (due on 20 October 2010).