Time for TIF? The prospects for the introduction of Tax Increment Financing in the UK from a local authority perspective

Abstract

In September 2010, following an endorsement by Deputy Prime Minister Nick Clegg at the Liberal Democrat Party Conference, HM Treasury released a press statement confirming that TIF would be introduced in the UK. It stated that Treasury and local authorities would work together in order to design a framework of rules within which TIF would operate. This research investigates what this framework of rules may comprise and how it may operate in the UK. There is surprising neglect, in literature on TIF, of what local authorities think about it and its potential to facilitate regeneration projects. A survey of 200 local authorities in the UK was conducted, complemented by interviews with local authority officers in Scotland, where pilot TIF projects are already under way. The research focuses in particular on the approval process necessary to ensure viable TIF schemes are identified and progressed, how these schemes are managed and financed, and what the main risks are for local authorities. Of primary concern to LA officers is the financial viability of a project, followed by its long-term commercial viability, overall cost, value for money and impact on surrounding areas. The main risks are identified as being that: the uplift in business rates is insufficient to cover the cost of the loan; TIF does not work in areas of greatest need; private sector investment fails to materialise; and displacement is generated. The paper concludes that such risks may be mitigated by adopting a rigorous appraisal process and robust management structure, and predicts that a two-tier TIF approval process, with similarities to that employed by the Scottish TIF pilots, may emerge.