Tax Increment Financing no silver bullet, says Localis Chief Executive

Author: Lucy Phillips, Public Finance   |  

Giving councils powers to borrow to invest will not be a ‘silver bullet’ for economic growth, Public Finance has been told.

Alex Thomson, chief executive of think tank Localis, said Tax Increment Financing – which would allow local authorities to borrow against predicted growth in business rates to fund capital projects – was not a ‘cure for all ills.’

He said that the way the potential of Tif powers had been ‘bandied about for years’ risked making councils believe ‘this one thing is what stands between them and success’.

He added: ‘It seems to me unlikely that it will be the answer to regenerating every area in the country.’

Deputy Prime Minister Nick Clegg announced last month that Tif powers for local authorities could be included in the government’s sub-national growth white paper. The announcement was widely welcomed by local government and business leaders and the chancellor outlined further details in the Spending Review.

Thomson said that Tif powers could be ‘very useful’ in some areas but the money would be ‘easier and cheaper’ to borrow ‘if you already have a reasonable chance of succeeding’. Historically deprived cities and regions, by contrast, would find it harder to attract investment, which would be more expensive, he warned.

He added that the risk that councils would back over-inflated growth projections ‘could not be ruled out’, depending on what rules were attached to the new powers.

Simply un-ringfencing council funding, as the government has already pledged to do, could give some of the same benefits as Tif.

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