Alex Morton: How to give retail the power to compete

Alex Morton is Research Director for Housing, Planning and Urban Policy at Policy Exchange.

Politicians love to talk about evidence-based policy making. They also love to talk about the need to raise peoples’ living standards. Yet there is an area of policy that currently goes against both, and simply pretends nostalgia and central control is the way forward.

Retail is undergoing a huge shift. It is responding to the way that people prefer to shop. No longer do people need to head to one of many local high streets – they can click and get it delivered. As a result in the surge of the internet, only desirable retail destinations in their own right will survive. This is the fundamental driver of many retailers’ difficulties.  There is no longer any need to go shopping. But people may still want to go shopping. The 14 per cent vacancy rate in our shops masks a variation among high streets across the country. In well run and attractive high streets the number of boarded up shops is below 10 per cent, while in other areas it is well above 20 per cent.

Business rates are not the main problem. Neither are online/offline taxes. Amazon may underpay corporate taxes, but so does Starbucks, hardly an online retailer.  Business rates may be £6 billion or so but retailers’ sales are worth some £300 billion – in other words just two per cent or so of total sales. The key is that retail as social activity is the future, and this means change. But policy has lagged, with negative economic and social consequences.

In the mid-1990s a policy titled Town Centre First emerged that restricted the development of out-of-town retail outlets. Subsequent studies show this policy has had a major impact on the cost of living. Even using low academic estimates of 25 per cent productivity losses, and applying this only to food and clothing, Town Centre First is costing the average household close to £1,000 a year. As a result of this out of date policy, large companies simply moved into towns, occupying smaller and less productive stores. They didn’t lose out–customers did.

The argument put forward against out-of-town shopping is that it would weaken our nation’s social fabric. This flies in the face of evidence. A YouGov poll found that by two-to-one people go with other people to out-of-town centres, whilst most trips to high streets are solitary. So arguments for Town Centre First are completely back-to-front. Town Centre First must end. It is socially and economically harmful, and as polling by YouGov found, it is opposed by voters across all parties given the higher costs it imposes.

The answer to retail’s current difficulties is not to limit competition. It is to give high streets the powers to compete. All too often, some councils pursue ideological obsessions that mean hard- working shopowners are left struggling. Despite the fact that parking and car access are the second most important issue for shoppers, many councils pursue anti-car policies that drive away (no pun intended) consumers. While our ageing population thinks well maintained public toilets are key, many have been closed by councils in recent years.

In our report, we propose that poor performing councils have their powers transferred to management companies run by retail experts. These retailers would take over decisions on issues such as planning, parking and the location of amenities such as toilets and ATM machines. Empty premises could be  converted into gyms and offices and shops could be knocked together to create more viable spaces. They will be able to stop clusters of ugly shops and vacant shops blighting high streets and driving customers away. This gives high streets a level playing field with larger single landlord centres.

There are measures that can and should help small retailers compete – minimising regulation, a short term freeze on retailers’ business rates. But even after this, some of our high streets that are not the main high street in a town or area either need to massively shrink or completely convert to other uses. In some cases, helping to solve our housing crisis by converting to homes is the best way forward. This is best done in a co-ordinated way and policymakers need to recognise this.

The ost of living will be one of the dividing lines of the next election. With retail policy, politicians finally have a chance to show they are on the side of hard pressed voters. The time has come for 21st century retail policies to suit the needs of the 21st century customer.