“Hurrah!” said the property industry, when tax increment financing was finally given the green light by the deputy prime minister in September.
“What do you call this?” was the response, when flesh was put on the bones of that initial announcement last week (p54).
Ministers believe- as did the property industry before business secretary Vince Cable unveiled his local growth white paper last Thursday – that TIF will be a major driver of development in the years ahead.
However, in only allowing local authorities to borrow against future increases in business rate revenues, it’s hard to see how the new arrangements will take us much closer to that hallowed ground.
So far, at least, the sorts of TIF that have been so successful in the US – where they have existed for almost 60 years – will not be permissible on this side of the pond. Ruling out developer-led borrowing is causing significant, legitimate concern.
Putting to one side the incongruity, during a national debt crisis, of allowing the public sector a new borrowing facility that is denied to the private sector, the policy seems to turn TIF fundamentals on their head.
Selling future tax receipts against current private money – the US model – offers lenders the security of a guaranteed income stream, gives the private sector access to lending that might otherwise not be readily available, and ensures that the public sector assumes no risk.
On the face of it, the UK model forces the public sector to accept risk, and could curb the willingness of lenders to back schemes – so much so that advisers such as Cushman & Wakefield’s Alistair Parker believe that as few as four or five of the 124 pilot schemes may get off the ground.
Hammerson, for example, is already asking questions about the prospects for its £600m, mixed-use, Sevenstone regeneration project in Sheffield. Others – including Grosvenor, Lend Lease and Land Securities – will also have been left scratching their heads since Cable’s announcement.
Of course, some will benefit. The long hoped-for regeneration of Battersea Power Station, for instance, will be boosted by a local authority-led TIF as it is one of 20 or so that rely on councils extending their prudential borrowing rights.
Clearly, a flexible system that offers an either/or (public/private sector) solution would have offered the best of all possible worlds.
The countdown to TIF Mark 2 starts here.
• Rising expectations that the government will not sanction major disposals from its £370bn property estate became reality this week, when the Department for Transport pulled a £48.5m sale of a newly refurbished Manchester office building to a German bank (p35).
It’s a clear statement that the Government Property Unit means what it hints when it comes to holding onto its best assets.
The surprise this time was that the decision came so late in the day – within a week of completion. But, frankly, so much around the government’s efforts to formulate a coherent property strategy has been subject to delay.
That will provide no comfort to HIH Global Invest, a subsidiary of MM Warburg & Co, which had agreed terms with BRB (Residuary) Ltd, part of the DfT, to buy the 122,170 sq ft Piccadilly Gate. But it does provide clarity to the market, and credibility to government property tsar John McCready, who should be taken at his word.
A DfT spokesman told Estates Gazette this week: “This policy means that the government will not sell freeholds where government agencies remain in occupation as long-term tenants.”
That it was willing to forgo a record yield for this cycle in Manchester only serves to emphasise the point.
damian.wild@estatesgazette.com
