In one respect, the Government’s decision to allow councils to introduce tax increment financing (TIF) has elicited a universal response – traditional funding routes to kick-start new infrastructure have dried up, so alternatives must be looked at.

Whether TIF itself is the right alternative remains to be seen, but at the moment, it is the funding vehicle carrying councils’ hopes for infrastructure investment and urban regeneration. For those with major transport projects on hold, or facing the axe in the Spending Review, TIF could offer a financial lifeline to revive such schemes.

Under TIF, infrastructure costs are paid for with future business rates generated by the development it would enable. It was pioneered in the US, notably in cities such as Chicago, but councils will now be studying an example much closer to home – the Scottish Government last week approved the UK’s first TIF scheme, in Edinburgh.

A number of city councils in Scotland have been working on pilots alongside the Scottish Futures Trust, and the capital has now got approval to use the funding model to regenerate its waterfront.

Using TIF, Edinburgh City Council plans to cover the £84m costs of building a new cruise liner terminal, lock gates, esplanade and a link road. The council estimates the regeneration has the potential to unlock £660m of private investment and generate up to 4,900 jobs.

South of the border, local authorities will have to wait for more details on TIF in the Spending Review later this month. It is currently unclear whether borrowing will be capped and how risk will be balanced between public and the private sector. But Stephen Hughes, chief executive of Birmingham City Council, who has been in conversation with the Treasury, said he expected ‘some rules around TIF’ and an initial bidding regime.

Birmingham, which is eager to pilot TIF in England, has drawn up a package of schemes ‘which are ready to go,’ Mr Hughes told Surveyor.

In terms of transport, one of the schemes is for a rapid-transit system in the Black Country, and another for a station regeneration. A third project is for the redevelopment of Longbridge, ‘a more traditional regeneration proposal’. He said TIF would rebalance the economy and enable a better chance of economic revival. ‘If left to the markets, the revival will be focused on London.’

Leeds City Council has also developed TIF proposals for the Ayr Valley, in which sustainable transport forms a key element. ‘We’ve got 400ha of land ready for development, and if you’re creating 20,000 new jobs, you need a sustainable transport system,’ said Peter Anderson Beck, the council’s head of regeneration.

Central to the transport element is the New Generation Transport (NGT) trolleybus scheme, which is hanging in the balance pending the Spending Review. ‘We’re looking to prioritise generally along radials, but also to get orbital penetration. One of the routes would be the NGT,’ Mr Anderson Beck told Surveyor. He said the total TIF scheme was in excess of £200m, but the returns for the whole city could be £7bn gross value added (GVA) over 10 years.

TIF would enable early delivery of a sustainable new district for Leeds but, like those drawn up by other councils, the proposals depend on the outcome of the Spending.

Commentators agree that TIF will lift cities such as Leeds and Sheffield but, in the words of the acting chair of UK Regeneration, Jackie Sadek: ‘It won’t benefit areas like Hartlepool’.

Tom Foulkes, director general of the Institution of Civil Engineers (ICE), also warned the greatest beneficiaries might be areas which are already prosperous as the increase in business rates was more likely to materialise. ‘If we are to rebalance the economy, funds need to be available for schemes that can help regenerate areas that need it most.’

In the US, regeneration experts have warned that TIF has resulted in inequalities and debts in some cities, and Edinburgh says the key risk is one of ‘displacement’, in which some of the increase in future rates might occur at the expense of a decrease outside the TIF zone, due to business relocations.

Ms Sadek said: ‘Ultimately, it’s a debt, which is a bit counter-intuitive in the current climate.’ Others warn that the money only gets paid back if the developments fill up and the projects prove profitable. A spokesperson for Curzon Investment Property said: ‘It all boils down to risks, although it is fair to say some TIF structures can fall at the feet of the developer. But not all. And can councils be trusted?’

Mr Hughes said the nature of the Birmingham proposals meant the risk would be carried across the city. But he conceded that ‘we’d need some certainty over funding streams’.

Mr Anderson Beck added it was Leeds’ job to gauge the appetite councils and their private partners had for risk. ‘Our job is to come up with a programme which allows the private sector to carry its risk, and the council to carry the short term impact before the business rates materialise.’

Time will tell how councils utilise TIF and to what effect. But, ultimately, many in local government welcome an opportunity to invest in infrastructure in an otherwise bleak financial climate.

As Mr Anderson Beck concludes: ‘It’s not a magic wand, but it is a funding solution.’