Major Scottish councils should consider Tax Increment Financing (TIF) as a realistic funding mechanism to help deliver infrastructure as traditional sources dry up, according to local authority experts.

The COSLA Infrastructure Task Group has warned that local government may not be able to provide the infrastructure needed for effective service delivery, given the forecasts for the next spending review.

With traditional funding sources being squeezed by the current financial climate, the task group recommends a number of alternative options to fund infrastructure projects, but concludes that no one size fits all.

It recommends TIF as ‘another tool in the tool box’ for ‘larger areas’. TIF is a US-inspired mechanism enabling councils to borrow cash for regeneration programmes, based on an estimated value of future growth in local business rate takings. Three pilot local authorities – Edinburgh, Glasgow and North Lanarkshire - are actively pursuing the use of the model to support regeneration initiatives in their areas. Aberdeenshire Council is also exploring the use of TIF.

But the task group concludes that TIF does not address all local government infrastructure needs, and warns that it could be diverting ‘time and energy away from identifying a solution that will help more than a handful of councils’.

It also backs a Scottish version of the Community Infrastructure Levy (CIL) as another tool in the toolbox, but not at the expense of section 75 – the equivalent of section 106, in which councils negotiate levies with developers to fund related infrastructure. The Scottish Government has been looking at the viability of CIL.

It cautions against the use of prudential borrowing given the potential for the Treasury to impose a cap on it in the future.

‘Whilst the task group does not want to be alarmist, any such cap would have serious implications for local government’s ability to deliver necessary infrastructure and the recommendation is that councils should be aware of this risk in making decisions around the use of prudential borrowing,’ the report says.

The task group concludes that both the Scottish Government and councils need to have ‘serious discussions’ about the future of infrastructure investment.