As previously reported, Battersea developers REO renewed their commitment to taking the Northern Line to Battersea at their exhibition on the site earlier this month. As Mark Lee pointed out in the comments at the time, however, the exhibition was not particularly enlightening when it came to the issue of funding.

Whilst the extension has long been mooted as a privately funded initiative, it seems increasingly likely that should the extension go ahead, it will not be REO alone who foot the bill. Indeed, the details REO have made available so far all mention the company as being in talks with “other parties” about funding.

Perhaps unsurprisingly, it seems that those other parties are the Mayor’s Office, TfL and the boroughs of Lambeth and Wandsworth.

The evidence for appears to come from Deputy Mayor Simon Milton, who is responsible for planning and policy. Milton was one of the speakers at last week’s British Property Federation conference. Although the majority of his talk covered issues associated with beating the recession, he did touch briefly upon the Battersea Extension and made an interesting statement – that the Mayor’s office are currently working with both TfL and the two boroughs in question to put together a proposal that sources funding for the extension via Tax Increment Financing.

The basic concept behind Tax Increment Financing (TIF) is relatively simple. Many large-scale infrastructure projects (particularly transport ones) lead to a measurable increase in tax revenue within a given area when they are completed. This is the “tax increment” and – the theory goes – if you can accurately estimate what this increase is likely to be, then there is nothing to stop you borrowing the money to pay for said infrastructure project and financing the loan via that future tax revenue increase.

TIF may sound a bit of a gamble (and critics of the method argue that it’s exactly that), but it has been used successfully in the US for some time. Over the last fifty years it has become a popular method for fund-raising amongst municipalities and cities where federal or state funding is unavailable for projects, with the state of California probably its biggest proponent.

Over here, TIF has generally been regarded with a certain amount of coldness by the Government. In recent years, however, there have increasingly been calls from both the public and private sectors to explore the possibility of putting a TIF framework in place within this country. That, combined with the increasing pressure the recessesion is placing on government bodies with regards to funding, seems to have led to a thawing of attitudes lately in the corridors of Whitehall.

The first signs that TIF may now be an option for local authorities to pursue came in April, when the Government confirmed that they’ve sanctioned a study into the possibility of “Accelerated Development Zones” within key UK cities. ADZs would basically be areas in cities such as Birmingham and Manchester where tax revenue increases would effectively be ring-fenced for TIF, allowing the powers-that-be within those cities to boost development within those zones. This is something the Core Cities Group – a body representing the UK’s leading urban centres – have been calling for for some time (you can read more about ADZs in their study here).

Given the apparent weakening of the Government’s attitude towards TIF, it is perhaps unsurprising therefore that the Mayor, TfL and the Boroughs have begun to explore the possibility of its use. TfL are definitely not overly-encumbered with the cash required to fund additional improvements to the Tube, and Transport projects represent one area where it is arguably easier (although still not easy) to calculate the likely tax benefit infrastructure improvements would produce.

TIF, therefore, may represent a viable option for Battersea and, if it works there, for beyond. It is certainly an interesting and creative option and – as Herts County Council seem to be demonstrating with the Croxley Rail Link – sometimes it pays to be creative.