Jackie McGuire considers some of the issues associated with using TIFs for regeneration projects, and looks at some of the major schemes in the pipeline now.

The theory is, according to knowledgeable commentators, relatively straightforward. TIF, a funding model which is used extensively in the US and is now being given serious consideration in the UK, involves capturing anticipated incremental tax revenues to pay for enabling infrastructure.

In effect, councils will borrow capital to fund infrastructure that will enable regeneration projects, on the premise that the borrowing will be repaid from projected increases in non-domestic rates which will arise as a result of new development.

Simplistically, the premise is that the building of infrastructure will lead to more businesses being attracted to the area, which in turn leads to higher tax revenues from non-domestic rates, which will effectively be ring-fenced to repay borrowing.

Scotland may well lead the way with TIF, as it would seem that no new legislation is required to make TIF work in this part of the UK, whereas in England and Wales, the suggestion is that enabling legislation will be required.

In Scotland, three local authorities currently have TIF schemes in the pipeline. In January, Edinburgh City Council announced proposals for the redevelopment of Leith Port, valued at £84m, just as Glasgow City Council announced an £80m proposal to expand the Buchanan Galleries, one of the city's major shopping malls.

North Lanarkshire Council has also announced intentions to borrow £70m to assist with gap funding in connection with the proposed redevelopment of the site of the former Ravenscraig Steel Works – which I visited as a child and found indescribably overwhelming in terms of size.

According to the Ravenscraig website, overall redevelopment of the area is ‘one of the largest regeneration projects in Europe, covering 450 hectares (1,125 acres) – an area equivalent to 13 London Canary Wharfs, 700 football pitches, or twice the size of Monaco'.

As a project, it is very different from what is being proposed in either Glasgow or Edinburgh, but without access to detailed business cases, it is not possible to draw comparisons between the financial and risk profiles of the three potential TIF projects.

Each will be assessed on its own merits by the Scottish Government, which will have to be persuaded to consent to the hypothecation – ring-fencing – of non-domestic rates, although indications are that hypothecation will be virtual rather than real, with the rates adjustment being managed through grant aided expenditure.

But TIF is not without risk, the most obvious being that anticipated tax increments will not materialise, or that the tax increments will not be ‘real' in the sense that they will arise from the displacement of businesses from one location to another, including from one local authority area to another.

Business cases will have to be closely examined in order to identify potential risk. If the tax increments do not materialise, the borrowing costs will need to be met from the public purse, although the impact may be defrayed through risk sharing with private sector partners. At a time when investors and developers are particularly sensitive to risk, it will be interesting to see how risk sharing plays out when the private sector engages in the market.

Returning to the question of displacement, the Scottish Government may wish to consider how individual proposals will improve the Scottish economy overall, rather than appraise, in isolation, how they might improve localised economies.

Will these schemes really make it easier to bring forward development that is particularly challenging? Or is it more likely to be used to encourage investment in less-challenging projects which have been set back by the impact of the recession, but would otherwise have managed to wash their faces without government intervention?

This is not to say that vehicles such as TIF should not be put to use to ensure that Scotland's major cities remain vibrant and competitive – quite the contrary – but the appeal of some schemes may mean that other, equally-deserving but less-profitable schemes will not get off the ground.

In the pursuit of the wider social and economic good of the country as a whole, some thought may have to be given to ensuring that TIF is used in the right way and in the right places.