I work for a council planning department. Developers are asking me about Tax Increment Financing. What do I need to know?

Alistair Parker, partner in development and planning at Cushman & Wakefield, responds:

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Tax Increment Finance (TIF) is an American fiscal tool that uses future gains in taxes to finance current improvements.

The provision of new public infrastructure can increase the value of surrounding properties which in turn can lead to increased tax revenues. The increase of tax revenue over the former tax base is the ‘tax increment’.

TIF uses the tax increment generated by public infrastructure within either a defined district or a defined scheme to finance the debt raised to pay for the infrastructure. TIF is founded on the principle of  “no new tax, no lost tax” in the sense that the taxes flow from existing law and the additional revenue only flows if the TIF is put into place.

Originating in post war Californian measures to address urban blight, it is designed to address improvements that would otherwise never occur in the market without public intervention. This is known as the “but for TIF” test: namely that it creates funding for public projects that would otherwise be economically unaffordable in deprived areas.

The TIF process involves calculating the existing property tax revenue in order to then agree the increment tax that would be payable following the new development. That surplus revenue is the driver, for a limited period, of the capital investment. The new capital investment or debt can either be guaranteed by local government, rest solely upon the TIF revenues or be provided by the developer who receives the TIF revenue on a ‘Pay as You Go’ basis.

The idea of using TIF in the UK arose in the 1990s. It was raised in a government green paper in September 2000. Last year, the minister John Healey invited councils to make some suggestions for pilot schemes.

The Government confirmed ongoing interest in the pre-Budget report. Working parties at Communities and Local Government/Treasury are exploring how it might be set up with the Core Cities Group.

The Conservative Party have indicated supported for TIF provided it involves no public money or revenue guarantees.

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