Under a system of tax increment financing, local authorities would be able to retain a greater share of the increased tax revenue from future development in order to go out to the financial markets and raise debt against a bond to fund infrastructure.
TIF is widely used in the US to fund local infrastructure. This money would then be repaid from the extra tax revenue in years to come and would replace the current “agonising” and “uncertain” process of central government financing, said Liz Peace, chief executive of the BPF.
She argued that although the business rates system would need to be changed in order to roll out TIF nationwide, this should not stop innovative councils piloting schemes under current legislation.
Ms Peace said: “The country has an enormous infrastructure deficit and now is the time to think imaginatively. The Treasury has been hugely closed to imaginative thinking; we have been talking about the US model for four to five years and we want the Treasury to set up a commission to look at it. There are hints that they are more interested than they were.
“Good infrastructure unlocks development sites. You just have to look at the Thames Gateway, where it is proving very difficult to get it going because the infrastructure is shot.”
She cited the example of the refurbishment of Birmingham New Street Station as a project hampered by the limitations of local government funding: “What Birmingham needed was a new station and the city council should have the freedom to create – and they do have the civic leaders to do it – a sensibly imaginative financing plan.
“The money that the Department of Transport has come up with finally allows for a major refurbishment but they should have been looking for a more fundamental solution.
“Labour is frightened of giving councils control of high finance – it has never really got over the Hatton era in Liverpool but different times call for different measures.
“You have to give local authorities freedom to manage the finances and city councils have a thirst for this.”
The BPF also called for the Government to respond to last week’s publication of the Rugg review of the rental market by backing an increase in the build-to-rent market – currently much smaller than in other European countries – as a way of kickstarting the housing market.
Ms Peace said: “If you get the right stock and the right finance vehicle you could start to create a much bigger and more professional private rental sector. Isn’t now a great opportunity when you have so much unsold product and so many builders who want to get on and build?”
“There is a lot of talk among developers and advisers about creating an investment fund which would buy up properties for rent. Although a note of caution: the existing plethora of city centre onebedroom apartments look like they won’t be the right stock any more.”
She said the BPF was disappointed that the review did not call for changes in the planning process to support build-to-rent but added: “If you could get local authorities interested and see what it does to investment, then you don’t really need central government. We need some pilots – we don’t need legislative change.”
One of the advantages of using a build-to-rent market to soak up unsold properties is that it is not stymied by the exacting standards required for social housing.
She said public sector bodies setting up funds to buy unsold housing stock for private rent was “a much better use of public money” than government buying a direct stake in house builders, as Labour MPs have called for.
Reacting to this month’s announcement by chancellor Alistair Darling that the government would bring forward public sector funding in a bid to kickstart the economy, Ms Peace said a genuine increase in financing was unlikely.
“But the message is: where local authorities have plans, money and land, just do it and spend what you are budgeted for. Otherwise you get into a self perpetuating cycle of falling confidence.”