Local authorities will soon be handed new borrowing powers through the introduction of US inspired tax increment financing (TIF) to kick-start stalled regeneration infrastructure programmes.

Deputy prime minister, Nick Clegg, revealed on 20 September that the TIF programme would be formally launched in next month’s Comprehensive Spending Review (CSR).

The scheme will allow councils to borrow against future increases in business rates paid by firms in areas earmarked for regeneration, in a move to soften the blow of forthcoming cuts to councils. Further details of this plan will be revealed in a government White Paper on economic growth, alongside the CSR.

A Treasury spokeswoman confirmed officials were in discussions with local authorities and business leaders about the scope of TIF regimes, which could cover traditional city centre regeneration, transport, road, school and public space developments.

Earlier this year, local transport minister, Norman Baker, indicated the Government’s intention to make it easier for councils to roll out light rail schemes.

TIF could help pay for such infrastructure as part of regeneration plans, and could also offer a lifeline to local transport schemes axed following the Spending Review. Surveyor has learned the London mayor, Boris Johnson, is already looking into the possibility of using TIF to finance the capital’s transport upgrades.

A source in the mayor’s office told Surveyor Mr Johnson was considering how TIF could fund Tube network extensions and a regeneration plan in Battersea.

A senior local government figure added: ‘An arrangement could be made whereby London boroughs can raise the TIF and fund transport developments in partnership with Transport for London.’

Mike Whitby, leader of Birmingham City Council, has urged the Government to allow the city to put the theory into practice as a pilot scheme for the rest of the country.

‘We have already put forward several proposals for how accelerated development zones (ADZs) could operate within the West Midlands.’

However, there are fears councils might ‘play it safe’, and the beneficiaries could be areas which are already prosperous, since the increase in business rates is more likely to materialise – therefore diverting investment away from areas that need it most.

Tom Foulkes, director general of the Institution of Civil Engineers, said: ‘Less prosperous areas will present a higher risk, yet it is often these areas which are most in need of new infrastructure to boost the local economy and create new jobs.

‘If we are to rebalance the economy, funds must be available for schemes which can help regenerate the areas that need it most.’ Treasury officials are carefully considering the issue of ‘additionality’ – ensuring projects funded by TIF are those which could not otherwise be financed through existing means, such as current prudential borrowing powers.

But Chris Murray, director at the Core Cities Goup, which has been looking into how a UK model of TIF could be developed, told Surveyor: ‘The issue here is this is not a grant. It is not a hand-out from government – it’s borrowing. Local authorities are taking the risk on increased business rates.’

Asked what would happen in the event of a TIF failure – such as a large revenue shortfall against debt obligations – Mr Murray said: ‘The lead agency for TIFs would have to take the hit. Anyone embarking on a TIF will want to be really sure it is going to make money.

‘We’re not going to have wild spending and wild borrowing.’ Mr Murray said it was vital the most appropriate model was developed and implemented quickly, in order to stimulate economic recovery.

The Treasury spokeswoman said the framework would be ‘strong and robust’ to ensure there was no over-borrowing, how it was spent and by whom.