Market forces – not government intervention – can revive our towns

Len Shackleton

January 30, 2020

Nothing would cheer up Boris Johnson’s new voters outside the big cities more than a concerted move to improve our provincial town centres. Wherever I go in Britain, whether it be northern towns like Altrincham or Doncaster, southern seaside towns like Southend, or historic Midlands market towns like Evesham, I see the same townscapes. Big stores and banks have closed, far too many shops – some estimates suggest one in five – are boarded up, and those that are left are disproportionately charity shops (11,000 in the UK at the last count), betting shops, takeaways and Poundlands and the like.

Even historic shopping destinations, from Princes Street in Edinburgh to Lord Street in Southport, are suffering from the same trends, with major department stores closing. The big “anchor” stores, such as Debenhams, Marks and Spencer, and John Lewis, are shedding branches in medium-size towns, leaving huge buildings which no other retailer is going to take on.

The prime causes of the move away from high street shopping are well known: first, the move to out-of-town shopping centres with plenty of parking space, and second, the ever-increasing popularity of online shopping, which has grown faster in Britain than in most other countries. There is no obvious way in which these trends could be reversed even if we wanted to reverse them. The high streets and town centres that many older Britons grew up with are never coming back.

But this does not mean that nothing can be done. These town centres have existed for hundreds of years. High streets were not always populated by the big national chains as was the case from the 1960s onwards, nor by the independent grocers, fishmongers, butchers and bakers of the interwar years.

For much of the 19th century, fine civic buildings, housing, small workshops, factories, dairies, churches, libraries and street markets mingled in the urban environment. We need to work towards similar eclecticism in the future so we can repurpose our town centres for the 21st century.

Interventionists see government funding as the way to do this. There is, for instance, a “stronger towns fund” and an earlier “future high streets fund”. But I’m not particularly enthusiastic about this sort of spending, which rarely achieves much but creating jobs for middle-class enthusiasts for vague ideas such as training, consultation and inclusion.

The stronger towns fund, for example, is a top-down exercise allocating funding using a formula which is “based on a combination of productivity, income, skills, deprivation metrics and proportion of the population living in towns”.

It’s surely better to use market forces than to try to work in this way. One major problem, though, is that market forces have been corralled by government interference ever since the 1947 Town and Country Planning Act.

Land use in towns, despite some minor loosening recently, is strictly regulated. There are four main uses recognised in town planning: class A, shops and other retail premises including restaurants; class B, offices, workshops, warehouses and factories; class C, housing; and class D, non-residential, assembly and leisure. There are complicated subdivisions of these categories.

Movement between these classes, as demand for town space shifts, is difficult. “Permitted development rights” (PDRs) allow movement within a class; say, switching the use of a shop between different retailers, without unnecessary bureaucracy. There are also PDRs allowing movement between some categories, but not others – for reasons which are not altogether transparent.

For example, “hot food takeaway” premises (a subset of category A) and laundrettes can be converted into residential accommodation, but shops generally can’t.  Takeaways can’t be changed into offices. “Finance and professional” premises, such as banks, can become leisure venues, but not flats or houses.

These restrictions slow down or prevent changing use of premises. They are not absolute, and developers can negotiate a change of use which does not have a PDR, but it is an expensive and time-consuming process which can be thwarted for a variety of unpredictable reasons.

One important idea which has attracted attention recently is to use the surplus of retail accommodation to help mitigate the country’s housing shortage. While this won’t work everywhere – the need for housing may be greater for families with children in some areas, while shop conversions can only provide small flats suitable for singles or couples with no children – it is nevertheless well worth trying.

An earlier relaxation of planning rules, to allow offices to be converted into flats, led to over 40,000 new dwellings being created between 2015 and 2018. There is, however, a good deal of opposition to this – often from left-wing councils or activists who argue that such flats provide a big gain to developers without getting a corresponding “developer contribution” to social housing. They have accordingly been accused of “social cleansing”.

A recent consultation exercise conducted by the government showed considerable opposition to relaxing planning controls; the result under Theresa May’s administration was a relatively modest liberalisation allowing some new residential development on top of existing buildings but no “bonfire” of controls. Boris Johnson should be a lot bolder.

Another way in which the government affects town centre land use involves the perpetually controversial area of business rates. The spread of charity shops (40 per cent growth in the last ten years) is almost entirely a creation of government policy on rate relief.

Three months after a shop becomes empty, the landlord has to pay business rates. However, if a tenant can be found, the obligation passes to them. Charities are entitled to a mandatory 80 per cent reduction in business rates. It’s therefore in the interests of landlords to allow charities to occupy shops on short leases for low or zero rents. This deprives councils of their share of business rates, but they can do nothing about it as the PDR system allows this.

Charity shops no doubt serve some good causes, but too many of them in a high street creates a miserable impression. They also have pernicious effects on other businesses.

Apart from paying low rents and business rates, charity sales are exempt from VAT. Their energy is much cheaper –  they are entitled to a VAT reduction from 20 per cent to 15 per cent on energy bills, they are exempt from the climate change levy, and they pay no corporation tax on profits.

These advantages have given them dominance in many fields. Oxfam is the largest seller of second-hand books in the country, taking trade away from commercial second-hand bookshops. Charities sell second-hand clothes, competing with retro clothes shops, and are given second-hand furniture, which affects the trade of house clearance businesses and junk shops.

More generally, the business rates relief favours short-term leases to charities rather than small commercial businesses, craft shops or pop-ups which would bring more variety to high streets, and probably more longer-term growth. It also encourages shop landlords to sit and wait for new longer-term tenants who may never come, rather than taking active steps to repurpose their buildings or the land they occupy.

Nobody has a miracle solution for our blighted high streets and town centres. But this new government should encourage market forces rather than relying on an outdated planning set-up and a business rates system which, among its many faults, distorts the use of commercial premises.


  • Len Shackleton

    Professor Len Shackleton is an editorial and research fellow at the Institute of Economic Affairs and professor of economics at the University of Buckingham.

Written by Len Shackleton

Professor Len Shackleton is an editorial and research fellow at the Institute of Economic Affairs and professor of economics at the University of Buckingham.


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