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Clegg: borrowing against local businesses is to go ahead

Deputy prime minister Nick Clegg announced a new policy this week that will pave the way for Tax Increment Financing (TIF) to drive investment in local infrastructure.

“Far-sighted”

Supporters of TIF have lauded its ability to tap into new infrastructure funding streams via a ring fenced levy on local businesses. However, no political party has previously voiced definitive support.

The British Property Federation (BPF) has lobbied for more than three years for the funding mechanism. BPF chief executive Liz Peace said the announcement was “a far-sighted step”. “Ministers should be congratulated for offering industry what would appear to be absolutely brilliant news, although obviously the devil will be in the detail,” she said.

The Confederation of British Industry (CBI) welcomed the announcement. CBI head of energy, transport and planning policy Matthew Farrow said the government is right to consider the mechanism.

Meanwhile, the Association for Consultancy and Engineering (ACE) said the scheme could help to provide infrastructure that “otherwise may not have been undertaken”. Local Government Association chairman Baroness Margaret Eaton also welcomed the announcement.

Speaking at the Liberal Democrat Autumn Conference, Clegg said the funding mechanism will be “the first step to breathing life back into our greatest cities.”

Clegg cited a few regions which could benefit from TIF, including the Don Valley, Leeds and Newcastle. Local authorities “will be in the driving seat, instead of waiting for a handout from Whitehall”, he said.

“Local authorities will be in the driving seat, instead of waiting for a handout from Whitehall”

Nick Clegg

London mayor Boris Johnson has previously pressed to use TIF to fund an extension of the Northern Line to Nine Elms in Battersea, and the TIF mechanism has long been employed in the United States.

However, the ICE warned that, if not regulated properly, TIF could see the gap widening between more and less prosperous areas. “It is unclear at this stage just how closely the treasury will control the local authority’s ability to use the funds,” said ICE director general Tom Foulkes.

Prosperous “may be greatest beneficiaries”

“The greatest beneficiaries may be areas that are already prosperous as the increase in business rates is more likely to materialise. Less prosperous areas will present a higher risk yet it is often these areas that are most in need of new infrastructure to boost the local economy and create new jobs.”

TIF allows local authorities to borrow against predicted growth in their locally raised business rates to help pay for new infrastructure and capital projects. It is designed to unlock private funding while allowing local authorities to take on minimal risk. Currently, local authorities can borrow against their overall revenue stream, but that does not include business rates.

The government will issue more information on how TIF will operate, and the timeline for introducing the necessary legislation, around the time of next month’s Spending Review.

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