Last month the Scottish Government formally approved Edinburgh City Council's £84 million proposal to use Tax Increment Financing ("TIF") to fund the redevelopment of Edinburgh's waterfront. Edinburgh City Council's TIF project will be the first of its kind in the UK and will fund "enabling" infrastructure works, such as the development of a cruise liner terminal, lock gates, esplanade and link road.

The second and third TIF projects will, in all likelihood, also be located north of the border as the Scottish Government has recently approved, in principle, a proposal by North Lanarkshire Council for a £73 million project to fund the regeneration of the former steel works site at Ravenscraig and is working closely with Glasgow City Council on its proposal to redevelop Buchanan Galleries in the centre of Glasgow.

It has been estimated that these three projects, which will require public investment of around £250 million, will have the potential to unlock private sector investment in excess of £1.5 billion.

These projects form part of the Scottish Government's TIF pilot scheme, which was introduced last year along with the enabling legislation, which allows local authorities operating a pilot project to retain control over local non-domestic rates rather than remitting the rates to central Government to distribute. The Scottish Government has made clear that it supports TIF as a means of supplementing public and private sector funding and has encouraged local authorities to propose their own projects. A maximum of six projects will be approved under the TIF pilot scheme, which will be used by the Scottish Government to assess the viability and the effectiveness of the TIF model in Scotland.

TIF seeks to capture locally generated, incremental public sector revenues (for instance non-domestic rates) that would not have arisen were it not for the delivery of “enabling” infrastructure investment associated with the TIF. This enabling infrastructure will create the environment for, and unlock, planned regeneration and development by the private and wider public sectors, leading to sustainable economic growth. The key principle is that the public sector, most likely a local authority, would raise finance to deliver the enabling projects by pledging to meet debt repayments from the future incremental revenues created by resultant development i.e. the principle of paying ‘for growth, with growth’.

The advance of TIF in Scotland contrasts with the position in the rest of the UK where, despite lobbying from local authorities, private sector investors and the construction industry, the United Kingdom Government appears to be less enthusiastic about using TIF to fund enabling infrastructure and regeneration projects. The Scottish pilot scheme will, therefore, be watched with interest as its success, or otherwise, may have a bearing on whether this funding model will become available to local authorities throughout the UK.