I rise to speak to new clauses 1 and 11, and amendments 62 and 63.
My purpose with new clause 1 is to encourage the Minister to confirm, on behalf of the Government, that the necessary powers exist in legislation to make tax increment financing work in future, and also to confirm Ministers’ intent and commitment to using those powers. The case for TIFs—tax increment financing schemes—is unarguable. I myself have been arguing it for a number of years, first in the Treasury and then in the Department for Communities and Local Government. There are local government regulations in Scotland to allow six TIF pilots to go ahead. The use of TIFs is widespread in Canada and the US, particularly in areas where regeneration is required; indeed, only one state in the US—Arizona—does not have TIF legislation. TIFs build on the commitment that Labour made in government, in the Budget 2010, a commitment that was backed by a capital down payment of £120 million.
However, if the TIFs system is to work—that is, if local authorities are to borrow money for up-front infrastructure investment against the anticipated increase in business rate income as a result of the new infrastructure —there must above all be certainty for those long-term investments to be made. There needs to be certainty for a clear business plan and, then, an investment plan to be put in place, otherwise TIFs will not get off the ground and will not work. That certainty is required over a 20 to 30-year time scale, which is why it is needed in legislation. As the Centre for Cities said in response to the Government’s consultation:
“When the Government introduces Tax Increment Financing…it should be based on ‘Option 2’—a ringfenced TIF which is best suited for local investment finance within the proposed business rate retention system.”
That point was echoed by the British Property Federation, which said:
“Failing to ring-fence the income stream for that length of time”—
its submission referred to a 25 to 30-year period—
“would generally render the upfront investment unbankable, because the risks associated with it become too difficult to model, understand and price. TIF will only work with the sort of total ring-fencing proposed under Option 2”.
The Government made the commitment to ring-fencing, stating in the White Paper of October 2010:
“We will introduce new borrowing powers to enable authorities to carry out Tax Increment Financing”.
In response to the consultation, the Government also made a commitment to
“allow a limited number of Tax Increment Financing Projects to be exempted from any levy and reset for 25 years.”
That is the crucial commitment that I want to test against the content of the Bill before us. I expressed my concern about the freedom of the ring-fencing from any effects of reset to the Secretary of State on Second Reading on 10 January. He had no answer: either he did not know, or he did not want to say.
Let me therefore point the Minister to the source of my concern, which relates to paragraph 37(1)(d) of schedule 1 on page 32. This deals with the regulation-making powers of the Secretary of State, referring to regulations that can
“provide for that amount or that proportion to be disregarded for the purposes of calculations under any of the following provisions”—
in other words, regulation-making powers that can lead to the disregard of a proportion of business rates in specified areas, namely TIF areas, for particular payments that would otherwise be due. The provision goes on to identify payments to the central share, payments by billing to precepting local authorities, levy payments, safety net payments, payments on account and payments that follow from changes either to the local government finance report or to an amending report of a local government financing report. There is no power, however, to make regulations to exempt payments as a result of changes through a reset.
If I am mistaken, I would like the Minister to indicate where that power lies. If no such provision exists in the legislation, will he confirm that the Government will honour the commitment they made in their response to the consultation and will amend the Bill so that any payments resulting from a reset can be disregarded—and disregarded in full—for the purpose of the TIF areas? The Minister would be welcome to accept my new clause if he needs to do so.