Government and local councils can save the high street
Too many UK town centres have become economic deserts and local councils need to be empowered to revive local economies.
Many well-known retail chains have gone out of business or have restructured their operations and this in turn has resulted in closure of shops in many town centres.
Recent examples include BHS, Brantano, Card Factory, Carpetright, Debenhams, Evans Cycles, HMV, House of Fraser, Jamie’s Italian, LK Bennett, Maplin, Marks & Spencer, Mothercare, New Look, Oddbins, Poundworld, Prezzo, Super dry and Toys R Us.
Some experts think that around 10,000 shops are likely to close in 2019.
There are many reasons for shop closures that require action by local and/or central government.
These include austerity and wage freezes which have eroded the purchasing power of the masses forcing people to reduce their discretionary expenditure.
High street retailers face competition from online retailers operating from comparatively low rent/cost out-of-town premises and therefore face a profit squeeze.
Major online retailers like Amazon and Ebay are also able to create complex corporate structures to avoid corporate taxes and thus have advantageous cash flows compared to the brick-and-mortar retailers.
The government imposed funding cuts have starved local councils of much needed cash for local services and many have sought to ramp up business rates, which in turn has a negative effect of the viability of some shops.
Additional pressures are generated by higher shop rents, especially for small and specialist shops.
Shopping centres and shops are considered to be public spaces but are owned by corporations rather than local authorities or any public bodies.
Corporations are focused on providing higher short-term returns to shareholders and are less concerned about rejuvenation of the local economies or priorities of the local community.
Empowering councils to rejuvenate town centres
The closure of shops lowers foot-traffic which, in turn, reduces the potential sales and viability of other shops.
The high street needs to be reimagined and it is difficult to do that without some control by local councils.
Councils as diverse as Bolton, Canterbury, Medway and Wigan have sought to wrest control of town centres from property companies by buying-up local shopping centres and remodel them to meet local needs with a mixture of shops, residential, offices and leisure facilities.
However, ways also need to be found to curtail rising rents as, without that, plans for rejuvenating town centres would flounder. I would suggest the following policies:
Local councils should be authorised to compulsorily purchase, if they so wish, shops and shopping centres that remain empty for a specified period (e.g. more than six months or twelve months). The threat of compulsory purchase may persuade some corporate landlords to let their properties at lower rents.
The compulsory purchase of shops and shopping centres can be funded by loans and/or people’s bonds.
The rental arrangements would consist of two elements: a fixed minimum rent, and a variable element with an upper limit.
For example, the minimum rent for a shop may be £1,000 a month and the upper limit may be £1,500 per month. The charging of the differential (e.g. £500) would depend on the economic performance of the retailer.
The formula may be that the retailer would pay a minimum monthly rent of £1,000. If the monthly sales exceed say £20,000 (or any other specified amount) then a graded rent increase would come into play.
For example, the sales above £20,000 could require an additional rent of 1% (or any other agreed fraction) with a total maximum of £500. A variety of rent triggering points can be specified.
The net result is that, in times of hardship, rental costs would be closer to the minimum and thus reduce economic turbulence for retailers and the local economy.
In good times, the local council can expect to collect the maximum rent. The lower level of rents would also nurture small businesses, independent shops or those who want to try retailing but are dissuaded by high rents.
The minimum rent level should be fixed at an amount which would be sufficient to enable the local council to service the debt and meet related administrative costs. The upper limit should enable the local council to build reserves for community use.
The rental agreement should specify the arrangements for monitoring sales.
Under the above proposals, many shops and shopping centres would be owned by local councils rather than distant property companies.
Local councils would provide competition for property companies and curb their enthusiasm for rocketing rent increases by prioritising community interests rather than short-term shareholder interests.
The proposed policies would enable local councils to respond to local circumstances and revive the local economies.
There is no additional financial cost to the Treasury or local residents, but the policies would give local councils a greater degree of autonomy in addressing local problems and reduce their reliance on property companies for rejuvenating local economies.
Prem Sikka is a Professor of Accounting at University of Sheffield, and Emeritus Professor of Accounting at University of Essex. He is a Contributing Editor for Left Foot Forward and tweets here.
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