The British Property Federation is calling on the government to free up its stance on local government borrowing so councils can spend on regeneration even as the recession cuts off sources of finance

And the scheme is being backed by Birmingham City Council, which said a change in tax regulations would let it move on with a £1 billion development project in the region that is expected to create 44,000 jobs.

The BPF says the government should allow councils to raise money through Tax Increment Financing (TIF) – borrowing money against predicted increases in property and business tax revenue increases as areas improve through regeneration. TIF has been widely used in the US, where it is credited with the regeneration of large parts of Chicago, but has not been used in the UK.

Mike Whitby, the leader of Birmingham City Council, said the use of TIF would let the city go ahead with its plans to create an Accelerated Development Zone (ADZ) in the West Midlands to boost the local economy. He said: “Our city region of Birmingham, Coventry and the Black Country has already carried out considerable work on radical and unique ideas for an ADZ.

“Our proposals centre on a £1bn package of improvements to transport infrastructure, across six local authorities, which would open up huge areas for business and housing growth. Analysis already indicates the scheme could generate over 44,000 jobs while enabling us to compete for investment and jobs on equal terms against the most successful city-regions of Western Europe.”

Jerry Blackett, chief executive, Birmingham Chamber of Commerce and Industry, added: “We see the Accelerated Development Zone as an exciting opportunity to fund vital improvements in the City-Region’s transport infrastructure, to stimulate business growth, and to improve the City-Region’s global competitiveness, without imposing additional tax burdens on businesses during the current difficult business climate.”

Because local tax money is collected by central Government, the BPF said local authorities would have to have the seal of approval from London before they could start raising money through TIF.

Liz Peace, the chief executive of the BPF, said: “Making regeneration viable from a developer’s point of view is about enabling partnerships and allowing the public to benefit from what developers do best. Regeneration schemes involve a tremendous amount of financial risk for the private sector but the benefits are clear for all to see. However, in the current climate towns in need of regeneration will suffer as these types of projects are no longer financially viable.

“Our aim is to encourage the government to put in place the measures, such as the Accelerated Development Zone planned in the Midlands, that will allow developers and the public sector to continue to make things happen.”

Barry Allen, head of estate agents Savills in Birmingham, said: “It is certainly a good time to work in partnership with local authorities to maximise limited investment but also generate best results. It is significant Birmingham is backing TIF. This is a potentially important route to unlocking the biggest projects necessarily capital hungry upfront with consequent imbalances in the cash flows.”