Government proposals may free up the development pipeline
Published: 22 December, 2009
The Pre-Budget Report has raised hopes that Tax Increment Funding could be on its way to the UK.
Chancellor Alistair Darling has given the amber light to a new funding regime for urban regeneration schemes, that could free up the development pipeline, which currently stands at an all-time low.
Prior to the Pre-Budget Report the Treasury was intensively lobbied by industry bodies calling for the introduction of a US system called Tax Increment Funding. This allows local authorities to borrow against the future tax revenues that would be derived from new developments, in order to invest in the infrastructure necessary for the development to take place.
And in the Pre-Budget Report the Chancellor said: “The Government is interested in exploring, subject to the overall fiscal position, what further finance mechanisms, powers and flexibilities could support local authorities to drive growth and innovation most effectively.
“In light of this, the Government will continue to examine the framework that would be needed to implement Tax Increment Financing and consider the primary legislation that would be needed if schemes were to be introduced.”
The move was immediately welcomed by the lobbyists. Liz Peace, chief executive of the British Property Federation, said: “This is a good move for the industry as we all know that new funding will be extremely limited. Councils must be given the powers they need to raise funding and if we are serious about kickstarting construction then action will be needed to support TIFs and ensure that we do not stifle great opportunities to rebuild our towns.”
And BCSC executive director Edward Cooke concurred. “We strongly support the introduction of TIF in the UK for several reasons, including its more efficient approach to infrastructure financing than the current public sector approach and its very significant capital raising potential,” he said.
The need for urgent government action to stimulate development activity was highlighted by new research carried out on behalf of the BCSC by Lunson Mitchenall. This showed that 8 million sq ft of new shopping centre space was completed in 2008 but only 2 million sq ft will have been completed by the end of 2009. And the picture is even bleaker going forward with 1.9 million sq ft expected to complete in 2010. Just one major scheme – Westfield’s Stratford City – is due to open in 2011.
“Some 45 million sq ft of planned shopping centres are now effectively on hold, pending improvements in the economy and consumer demand,” noted the BCSC report. It went on to warn that the lack of new space will hamper retailers’ efforts to grow their businesses once the economy does pick up. And because the lack of supply will force rents up it will raise the barriers to entry for new retail formats.
The report added: “This stagnation or delay has severe implications for the retail-led regeneration of many of our town centres, which has been a major plank of the government’s policy towards the stimulation of town centre economies.”
But the BCSC pointed out that TIFs alone would not be sufficient to ‘pump prime’ new developments. It warned that local authorities will have to play a much more pro-active role in the future if new regeneration projects are to make it off the drawing board.
“Local authorities must work with their development partners in constructive and progressive ways and aid the processing of planning applications,” it says. “This requires the political will of the local authority to champion the cause.”
