Tax Increment Financing – a “scam”?

Andy Wightman, the author of “Who Owns Scotland?”, questions the current appetite for Tax Increment Financing, and proposes his alternative for a fairer form of funding future regeneration.

In October, the City of Edinburgh Council obtained approval for a Tax Increment Financing (TIF) scheme in Leith Docks. This is a mechanism whereby the Council is allowed to borrow money to finance capital works (in this case a new road, public esplanade and port facilities). The uplift in non-domestic rates revenue arising as a consequence of these capital works is then used to meet debt repayments on the initial investment.

At the heart of this (although the promoters will not admit this) is the principle that land values belong by right to the community since it is the community which generates demand for land which leads to higher values for some locations than for others. In the Edinburgh scheme this is acknowledged by the fact that the boundaries of the TIF areas extend well beyond the area where the planned capital works are proposed. If this all works out, businesses right across Leith and Granton will pay more in business rates as a consequence of the uplift in land values.

Big Question

However, this proposal poses a big question. Why should business pay? Or rather, why should only business pay? Investment in infrastructure will lead to an uplift in land values across a wide area. But it is only the incremental value (that over and above what would have ocurred in the absence of the TIF scheme) of land and property liable to business rates that will contribute to the repayment of the initial public investment. This does not seem fair when the value of private homes, derelict land and other land will also rise and be captured by the landowners. Business is thus paying disproportionately for the public benefits being delivered through this form of regeneration when it is the uplift in land values right across the TIF area that should be used to finance the project.

And this has consequences which have perhaps not been properly appreciated. The Scottish Government owns Victoria Quay with a rateable value of £3.92 million on which it pays rates of £1,622,880 to the City of Edinburgh Council. Folllowing the TIF scheme, the rental value of Victoria Quay will rise (that’s the logic of TIF) and so the Scottish Government will need to find additional funds to pay the now higher business rates at a time of declining income. Meanwhile, the property developers sitting on all that vacant land will form part of the undeserving rich who do nothing but see the value of their property portfolios rising while they sleep.

Land Value Tax
In October I wrote a report on land value taxation for the Scottish Green Party MSPs in which I proposed exacting a levy on all landowners. Our proposals leave 75% of households in Scotland paying less that they do under the Council tax and will provide businesses with a cut of 75% in what they pay in business rates. Sounds good to me. I hope business agrees and has nothing to do with this Tax Increment Financing scam.

Andy Wightman’s new book, “The Poor Had No Lawyers – Who Owns Scotland (And How They Got It)” is available now; ISBN 978-1-84158-907-7.