The Cabinet Secretary for Infrastructure and Capital Investment, Alex Neil, has recently announced the Scottish Government’s provisional approval of Glasgow City Council’s £80 million Tax Incremental Financing (TIF) scheme. The proposed Buchanan Quarter TIF project will result in further expansion to Buchanan Galleries and George Square and the upgrading of both Queen Street Station and Cathedral Street Bridge. This article will look at the likely impact of this announcement and will seek to provide a general overview as to how TIF schemes operate.
The Buchanan Quarter TIF project
The approval of the Buchanan Quarter project is positive news for the local economy with it being anticipated that over £350 million pounds of private investment will be injected into projects across the city as a result and, in doing so, it is hoped that this will generate over 1,500 jobs.
However, the approval of these plans has not been unconditional. A key concern over the plans has been the knock on effect that this would have on other areas of the city centre which are not to receive direct benefit from proposals. There is a real fear that the expansion of Buchanan Galleries will draw consumers from such areas, including the city's Argyle Street and Sauchiehall Street, leading to the degeneration of some parts of the city. The Government has sought to prevent this by stipulating that provisional approval is conditional upon Glasgow City Council devising actions which ensure that benefits are delivered throughout the city and not concentrated within directly impacted areas. It remains to be seen how the Council will meet this condition.
With the above announcement and similar approval being granted to the Edinburgh Waterfront TIF project, the Scottish Government has declared that it is “leading the way” in backing TIFs. This begs the question as to how TIF schemes operate. Unlike other finance initiatives, it is not the Scottish Government which funds such projects. Under the TIF scheme, local councils can finance infrastructure projects by borrowing against income from future Non Domestic Rates (NDR) raised. The business rates generated within a developed area are likely to be greater in the future due to the increased value of land and the resulting commercial investment.
The appeal of TIF lies in the fact that for every £1 of public sector money invested, there is potential for an additional £5 to be invested by the private sector. It has been estimated that the initial phase of TIF projects could potentially bring a further £2.5 billion private sector investment to projects within Scotland. Therefore, perhaps unsurprisingly, the Scottish Ministers have expressed support for the scheme and have approved a pilot of seven projects to be introduced in order to measure the success of TIF when applied to Scottish projects. In addition to the approved projects in Glasgow and Edinburgh, there are five other proposed projects in Aberdeen, Argyll and Bute, Falkirk, Fife, and North Lanarkshire.
Assessment of TIF proposals
The Scottish Government has been aided by the Scottish Futures Trust (SFT) in developing criteria for reviewing TIF proposals in Scotland. SFT is also responsible for liaising with local authorities in developing Business Cases for their TIF project proposals. In carrying out this function, SFT will review the merits of the authority’s Business Case on behalf of Ministers. A 'but for' test should be used to determine whether 'but for' the TIF project, the objectives of the project would not be realised by other means or would not be brought about in the same timescale. There is a clear sense here of the outcome driven focus which is being applied to the application of TIF projects in Scotland.
The announcement that the Glasgow Quarter TIF project has been provisionally approved by the Scottish Government represents a further step forward for the widespread introduction of TIF in Scotland. That such a key project has been given the green light demonstrates the Scottish Government’s willingness to back this new initiative. Looking forward, the five other pilot projects are next in line and we wait to see how these projects will develop. As ever, there is a political dimension with Alex Neil highlighting the extent of infrastructure investment being seen north of the border despite budgetary constraints. The Scottish Government clearly believes that investment is the key to strengthening Scotland’s economy and, to this end, the Government's promotion of TIF is perhaps a gamble. It remains to be seen whether the gamble will pay off.