Jump-starting regeneration
Author: Adam MarshallDate: 26/02/2009
Publication: Local Government Chronicle
Michael Parkinson's review of regeneration in the credit crunch makes for grim reading. Thanks to financial turmoil, falling asset prices and plummeting business confidence, commercial and residential development in many parts of the country is grinding to a halt.
While Parkinson rightly urges the regeneration sector to battle bravely on where projects are still viable, the current levels of pessimism are striking. Some property barons now go so far as to argue that existing regeneration funding models, which depend on rising land values, are broken. Many say that the Government needs to create the conditions for new financial models to emerge - to ensure that Britain's stuttering development and construction industries don't die a credit-crunch related death.
Enter Tax Increment Financing (TIF), and the related ‘Accelerated Development Zones' (ADZs) now being promoted by the Core Cities Group and PricewaterhouseCoopers. Both are funding systems that securitise future tax revenues to jump-start development. And both models offer the promise of long-term infrastructure improvements at no up-front cost to businesses - an attractive prospect for budget-conscious council leaders and ministers.
It's no surprise that this perennial US favourite is once again being proposed here in the UK. Around the corridors of Whitehall, lobbyists are talking up TIF as a funding solution for our long-term regeneration needs. Big-city councils are getting in on the act, with Birmingham's ambitious £1bn ADZ plan attracting substantial attention. Leeds and Newcastle are not far behind.
So is TIF the answer to regeneration's financial troubles?
On its own, no. But with new fiscal constraints set to affect capital spending after 2011, traditional funding pots are shrinking. Direct public-sector grants, which are now keeping some marginal regeneration projects going, will be harder to come by.
There are clear advantages to piloting Tax Increment Financing now.
First, a pilot scheme would ensure that only the best infrastructure and regeneration projects are brought forward. By its nature, TIF requires councils to take on substantial risk - especially if projected revenues don't materialise. This will drive Councils, and the Treasury, to ensure that TIF projects are much more rigorously assessed than many of today's grant-funded schemes.
Second, it gives city council leaders a new incentive to boost their local business base. Unlike previous incentives, such as the ill-fated LABGI scheme, TIF links councils' long-term regeneration aspirations directly to growth in their local business rate base.
Third, a TIF pilot could easily be targeted on the parts of the country where regeneration has been worst affected by the credit crunch: the cities of the North and Midlands. Conditions for regeneration in the South are somewhat better - as the Parkinson Review showed - and major investments such as the Olympics, Crossrail and Thameslink have helped keep the industry afloat.
TIF is complex and technical, and would require big changes in the financial relationship between the Treasury and councils. Issues like securitisation, business rate hypothecation, and risk management would have to be dealt with. Given these hurdles, TIF is hardly a dream announcement for ministers, who would undoubtedly prefer a simpler way to show their commitment to the ailing UK regeneration industry.
But if we want cities to lead the UK's recovery, they need tools like TIF to deliver critical new infrastructure and promote future growth. By legislating for a TIF pilot now, Government would give cities access to future ‘growth dividends' - and make job-rich development projects more attractive to the market in time for the eventual upturn.
Complexity is no excuse. Councils, RDAs and business leaders have given TIF/ADZ strong backing. The evidence suggests TIF will deliver long-term benefits to the Treasury, too. It's time for ministers to have another look.
A version of this article first appeared in Local Government Chronicle.
