Tax incremental financing: the key ingredients

Amidst ongoing economic austerity, the UK government faces a significant challenge to fund major infrastructure projects. In many areas, market based solutions are not possible due to the scale of infrastructure required, at a time when land values are declining and occupier rents and yields remain uncertain. In order to create the conditions for growth, intervention by the public sector is considered an essential part of the solution. Tax Incremental Financing (TIF) is seen as a possible funding mechanism and is currently being promoted through parliament as part of the Local Government Finance Bill 2012. TIF is not a new concept having been introduced in the US in the 1950ís and there is a significant evidence base to inform current thinking. Based on research funded by the RICS, this paper critically examines the TIF models that are operational in the US to identify lessons that can be learned prior to possible adoption in the UK. The paper considers issues over designation, legislation, implementation and proliferation as well as the variety of risk sharing schemes adopted and the methodology used to measure performance. Using a case study approach, the research considers the key issues surrounding the introduction of pilot TIF schemes in Scotland and in Battersea, London and responds to the implementation process promoted by the UK government. The paper provides guidance on the key ingredients for a successful TIF and makes recommendations on the way forward.