It might not have got the pulses racing at the Liberal Democrats conference in Liverpool but it has certainly excited the town hall cognoscenti.
Plans to use Tax Increment Financing to revive our big cities have been welcomed by councillors across the country, by the Local Government Association and by a number of influential think-tanks.
Tif is used successfully in the US and allows councils to borrow against predicted growth in local business rates. They can then invest in infrastructure projects and regeneration schemes, boosting local jobs and businesses in the process.
Deputy Prime Minister Nick Clegg announced the new powers in his conference speech, suggesting they were ‘the first step to breathing life back into our greatest cities’. He predicted they would help to redevelop mines in Sheffield’s Don Valley, build a new science park in Newcastle and transform Leeds’ Aire Valley.
Let’s hope he’s right. Tif could be a useful additional source of funding for town halls at a time when capital funding is under huge pressure. But it’s fanciful to see Tif as a panacea for our infrastructure ills.
A potential flaw is that the areas most in need of regeneration might well be the ones least able to use such tax breaks (see 'Councils’ Tif powers broadly welcomed'). Unless the government allows a sub-regional approach, this could diminish the overall effect.
Moreover, there are risks that need to be considered. As Laurie Thraves points out on the PF Blog, some councils could make projections for growth that are unlikely to be achieved. The restraining hand of the Treasury will therefore never be too far away.
The Tif announcement should be viewed more as the coalition asserting its localist credentials. It’s a symbolic step for national politicians to take, and one that the previous government stepped back from.
But, as Simon Parker suggests in 'The shock of the new', Tif should be part of a wider package of measures to give councils more freedom to operate. Increased charging powers and voluntary local taxes need to be included in the mix – and council tax must not be
off limits.
Communities Secretary Eric Pickles could begin by confirming that next year’s review of local government finance will definitely increase the proportion of council funding raised locally.
Then there would be little doubt that this is indeed an administration that will put into practice its longstanding localist rhetoric.
Mike Thatcher is the editor of Public Finance
