Headlines: October 13th, 2010

Plans to allow British cities to adopt the American regime of funding infrastructure by borrowing against future tax revenues have been welcomed by the property industry, but concerns have been raised about the risk to council tax payers.

Tax increment financing costs can be paid for with extra taxes generated by the property development. For example a site might be developed and funded by an increase in rates from new shops and offices.

Tif began 50 years ago in the United States and works on the principle that economic growth is boosted by major infrastructure investments which in turn generate increased tax revenues. This revenue is then used to pay down the debt, generated by a bond issue or securitisation.

However, the money only gets paid back if the developments fill up and the projects prove profitable. Many believe the powers could be a vital boost in improving transport links across the country, which in turn would help revitalise many areas outside London. But with the occupier market flagging and retail bracing itself for a New Year hike in VAT, the prospects of filling vast new commercial developments is doubtful.

Primary legislation will be needed for Tif in England and details will be set out in a white paper on sub-national growth due shortly.