On 30th June the All Party Urban Development Group issued its latest report entitled "Regeneration and the Recession – Unlocking the Money".

The main focus of the report is highlighting the need for local authorities to have greater flexibility in relation to raising and using revenue and also entering into partnership arrangements with the private sector. In particular the report proposes that accelerated developments zones (ADZs) should be set up – a UK variation on the tax increment financing (TIF) which is common in the United States and whereby basically the construction of infrastructure is funded from future increases in tax revenue which arise from the associated new development.

The key views expressed by the Group in the report are:

  • Over the past 10 years, there has been significant progress in terms of urban regeneration but the recession has brought this to a complete halt.
  • Developers should expect further downward pressure on capital budgets going forward. This in turn will mean that local authorities have less resources either to fund infrastructure themselves or to establish partnerships with private sector companies.
  • Similarly developers will be more restrained both by the limit of availability of finance and the general reduction in land values and rents. The private sector will be looking at other ways of sharing some of the risk and upfront development costs with the public sector.
  • Business rates supplements and the community infrastructure levy are unlikely to provide sufficient resources to fund infrastructure on their own. A new alternative is needed.
  • If local authorities are going to take a more significant role then there will need to be more devolved funding and greater flexibility in terms of the types of arrangements which they can enter into.
  • Existing regeneration models such as PPPs and LABVs remain feasible in the current climate. However, going forward the public sector will need to take a greater share of the risk (and the rewards). The existing models will need to be more flexible and adapt to the current economic environment.
  • There needs to be absolute clarity on the European Union's Roanne judgment and how this works in relation to development agreements. Uncertainty in relation to this has already led to the cancellation of development projects and is causing delay and extra costs generally.
  • In the US, TIFs have, perhaps, been over used and there has been a lack of overall strategic monitoring. There needs to be a more structured approach in the UK to ensure schemes do not compete and are only used when without them redevelopment would not be viable.

The key conclusions and recommendations are:

  1. The Government should sanction in the next Pre-Budget Report a series of five or six ADZ pilots in different cities across the UK.
  2. These pilots should be used to push through a full national ADZ scheme from 2011.
  3. Local authorities need to take a more proactive and entrepreneurial approach to working with the private sector. They will need to take on more risk (but with the corresponding increase in reward).
  4. The HCA should establish a specialist regeneration team to assist local authorities with the day-to-day challenges of implementing different funding models and assessing/allocating risks.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 07/07/2009.