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Change rules on Business Rates to get development going now

Edward Cooke, Executive Director at retail property organisation BCSC, says future projected Business Rates should be able to finance infrastructure schemes - if the private sector takes the risk

Across England and Wales town centre development is stuck in a rut. The jobs and community benefits it could herald replaced by inactivity, with local authorities scratching their heads wondering how they can help kick-start economic growth.

But councils are being denied what could be a crucial development finance tool to get stalled proposals moving. Tax Increment Financing (TIF) uses projected increases in business rates income to secure debt or offset equity used for public infrastructure. Long practiced in the US, England and Wales lag behind, with current proposals as part of the Local Government Resource Review in reality still years off.

On top of this, there is a fundamental flaw in these plans – local government schemes won’t tap the full potential and widespread investment that TIF has to offer the UK.

Government also needs to embrace a private-sector led model, as in the US, and recognise that in a climate where it has, rightly, set itself challenging targets to reduce the budget deficit, increasing public-sector borrowing is out of the question.

This model is called the Local Tax Re-Investment Programme (LTRIP). Retail property developers will take this on enthusiastically, using the projected increase in rates to fund the public infrastructure conditions of any new development – from sewers to police stations – to get new schemes under way and start delivering growth.  Once the viability gap is bridged the rest of the project is funded in the usual way.

Importantly, after a set period of time the rates revert to Government. The odds are win-win for Government, and win-win for local councils, who will also reap the benefits of new development and infrastructure.

The stumbling block is the Treasury's view of public accounting rules. It claims that any money, debt or equity, must be classed as Government borrowing if using projected business rates increases to pay it back. This is because business rates are a Government income stream and even a scheme where 100 % of the risk sat with the developer would have to be on the balance sheet.

BCSC argues because the risks, either of the tax increase not being realised or the construction costs overrunning, lies completely with the developer, there is absolutely no risk to the public purse.

Any extra money generated by new business rates would not even exist without the development going ahead, making it plainly wrong to claim this money is a public debt.

Government recognises growth needs to be private-sector led. Retail property has the ability and experience to deliver the investment and ultimately jobs that towns and cities need; a developer TIF would help unlock this potential but what is needed is political leadership to make this happen.

BCSC is open to your thoughts and would welcome any comments or questions you may have.

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