Nick Maltby, partner at Bircham Dyson Bell LLP believes that the Government's proposals for Tax Increment Financing (TIF) set out in this week's Local Government Finance Bill, while a step in the right direction, lack concrete detail and may not do enough to provide local authorities with a strong financing mechanism for local growth.
"At the consultation stage, the document set out two options for TIF; option one suggested that local authorities could borrow against their income within the business rate retention scheme, whilst option two would allow a limited number of TIF schemes to be permitted where the business rates growth would not be subject to the levy or reset for a defined period of time," explains Nick Maltby.
"Option one is doomed to fail in my opinion - its not strong enough to fuel the growth so badly needed. Given the uncertainties created by the wider resource review it seems unlikely that local authorities will borrow sufficient amounts of money under this proposal to do much to jump start growth."
"Option two is welcome, as there was a distinct possibility that option two would not survive the consultation, but it will be limited and we don't yet have the detail as to how it will work. Of particular significance will be when does the reset happen - if it's less than 20 years then it won't support new infrastructure. The technical document in the New Year will be key."
"It remains a shame that TIF has been subsumed by the wider Local Government Resource Review, which sets up a very complex system and is likely to create uncertainty in Council Finance Director's minds about how they will fund services. There are a lot of unanswered questions concerning both TIF and the resource review to be addressed in 2012 before the bill becomes law. Most of the pressure will fall on those authorities who generate a surplus of business rates and it will be interesting to see how they respond to the new powers.
"The bottom line is that TIF powers are needed now. However, provided we get a sensible option 2 in the New Year that will give us something to work with and plan for but the demise of Treasury Holdings, the promoter of the Northern Line Extension in Battersea, where early TIF powers would have made a big difference, shows that policy delay can have a real impact on the ground.
"The ultimate test is whether local authorities will use TIF immediately, and not delay engaging in the process until everything has settled down in three years time?"
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