In searching for some good news in the Comprehensive Spending Review the announcement of the introduction of a new capital funding process known as Tax Increment Financing (TIF) seems to provide a surprising but most welcome development. Deputy Prime Minister Nick Clegg announced last month that TIF powers for local authorities could be included in the government’s sub-national growth white paper. The announcement was widely welcomed by local government and business leaders and the Chancellor outlined further details in the Spending Review.

TIF is widely used by local authorities in the USA as a means of financing infrastructure and regeneration schemes. It is an approach where a local authority raises finance against the expectation of higher property tax revenues from the expected uplift in tax from property over time and the predicted growth in property and households paying the property tax from new developments.

It is difficult to capture the tax yield in Britain because since reforms of local government finance in the 1980s and early 1990s, the income from business rates flows directly back to the Treasury, and is currently unavailable as a revenue source for local authorities. This means that the government will have to change existing policy and legislation allowing local authorities to capture at least part of the business rates yield as well as the council tax yield before TIF could be implemented.

To read Brian Madden's full paper on Tax Increment Financing (TIF) please email us  to order the paper by clicking here.