Right-wing economics has turned our high streets into deserts

It's no wonder our high streets are closing down, writes Prem Sikka.

Brighton will no doubt look lively for Labour conference. But in much of the country town centres are experiencing a net loss of shops and the trend is accelerating.

Many town centres have become economic deserts with loss of jobs and economic vitality. Various investigations, such as the Mary Portas Review and the Bill Grimsey Review identify internet shopping, high rents and business rates as key factors in the demise of town centres.

However, the shop closure rate across the country is uneven with comparatively poorer areas losing more shops. Shops catering for the rich are doing better than those catering for the middle and working classes. Such differences require consideration of government economic policies.

No surprises

Thriving town centres rely on purchasing power of the masses, but government policies have eroded that. Austerity, anti-trade union laws and loss of the bargaining power of workers’ has reduced their share of gross domestic product (GDP) from 65.1% in 1976 to 49.4% at the end of 2017. In 2018, the average income of the poorest fifth of the population after inflation contracted by 1.6%, while the average income of the richest fifth rose by 4.7%.

Regressive taxation policies have hit the purchasing power of the less well-off. Government data shows that the poorest 20% of households pay 42.4% of their income in taxes – 29.7% in indirect taxes and 12.7% in direct taxes. The richest 20% pay 37.8% of their income in taxes – 14.6% in indirect and 23.2% in direct taxes.

Due to low wages, many people are unable to buy their own home and have to rent. The total rent paid by tenants soared to more than £50bn in 2017, more than double the level of a decade ago. Take home pay has not doubled over the same period. Rising rents take a significant chunk out of people’s wages, leaving little for many other things.

Rising rents, wage freezes and price rises have made it harder for many people to make ends meet. The National Audit Office has reported that up to 8.3 million people in the UK are unable to pay off debts or household bills. At the end of June 2019, UK household debt stood at record £1,642 billion. Such level of debt is translated into fewer visits to retail shops, cafes, pubs, restaurants and other places.

Senior citizens also command low purchasing power even though their expenditure on everyday things is likely to have a greater multiplier effect. The retirees typically live on state pension and benefits supplemented by private pension and personal savings. The erosion of workers’ share of GDP has reduced people’s capacity to save and for many the state pension is a significant means of income.

A typical British worker at retirement receives state pension and other benefits worth around 29% of average earnings compared with an average of 63% in other major industrialised economies. The proportion of elderly people living in severe poverty in the UK is five times what it was in 1986.

City Hall cut

Local authorities are expected to stimulate local economies but their budgets are down by 26% in real terms compared to 2010, mainly due to cuts in funding imposed by the Conservative government. In the face of savage cuts, business rates are a lifeline to most local authorities.

This year, local authorities are expected to raise around £31.3bn from business rates. This affects town centre shops more than the likes of Amazon who operate from elsewhere.

Protecting the wrong Amazon

In 2018, the business rates bill for Amazon for its entire UK operation was £63.4m which is less than the combined total of £65.3m for just seven shops operating from central London. Unsurprisingly, many retailers are unhappy about business rates. However, the issues cannot be addressed without a significant change in central government policies.

Local retailers also operate on disadvantageous terms compared to online companies, such as Amazon and eBay. These giants are able to hire accountants and lawyers to create complex corporate structures, shift profits to low/no tax jurisdictions and avoid UK taxes. The resulting higher cash flow gives them an unfair competitive edge over local brick-and-mortar shops. The government has failed to adequately check organised tax avoidance. Local authorities cannot do anything about it.

In addition, many local authorities are not in a position to do much about soaring rents. If they own shopping space, they need the cash – if they don’t, property companies are pushed by shareholders to increase profits which is translated into higher shop rents.

In order to rejuvenate town centres, the government needs to enhance the purchasing power of the people. This requires increase in wages and pensions; changes to trade union laws, workers’ bargaining power, taxation policies, local authority funding; resolve to control high rents, tackle tax avoidance and much more. In the middle of conference season, all parties need to be thinking about this.

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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33 Responses to “Right-wing economics has turned our high streets into deserts”

  1. nhsgp

    Nope, its simply taxation, business rates, parking fines, and planners screwing it up

    Purchasing power, oh dear Prem. What about a 30% tax cut? You can’t do that because of those socialist debts.
    220 bn a year on the debts.

    220 bn a year would fix austerity. Those socialists debts that accountants have hidden off the books, are the cause

  2. Dave Roberts

    Mr Sikka needs some elementary education outside of academia. Certainly the internet sales have hit the high street but the rot started back in the sixties with the out of town shopping centre, the inner city super market, malls like Westfield at Stratford and Shepherds Bush as well as Lidle and Iceland. The latest threat is the Sainsbury, Tesco and now Coop Metro style stores which are putting the Asian and Turkish shops out of business.

    Legislation is needed to make shop owners liable to reduce their rents if the premises have been empty for a certain period of time and councils to offer business rate holidays for definite time spans. None of this is likely to happen and the situation will, get worse.

  3. Julia Gibb

    I agree fully with your comments on indirect taxation and the decrease in disposable incom of the poor.
    However when writing such articles you cannot ignore the rise in Internet sales or the increase in large retail centres with free parking. This is what people want!
    My own recent experience was of trying to buy a product in in a large well know electrical outlet. I challenged the fact that a Product was 100 pounds cheaper online than in the shop and with free delivery. The response “Sorry the discount is only available online”. Guess where I purchased my goods.

  4. Boffy

    Its not right-wing economics that has caused the High Street’s decline, but progress. Even in the era of Keynesian economics, at its height, in the 1950’s and 60’s, High Streets were in decline, as first small retailers lost out to supermarkets and larger retailers (the very process Marx described in Capital, as a natural law of capital accumulation), and then, as the motor car became widely available, out of town retail parks developed where costs were lower, and these began to replace town centres. That process was well under way in the 1950’s in the US.

    Now we have the Internet making online shopping available, so that even the out of town retail parks will have had their day other than as warehousing, and click and collect centres. This is not something to decry, any more than we would decry a similar kind of progress meaning that children are no longer sent down mines. Trying to protect inefficient capitalists on High Streets in Town Centres should be no part of our agenda, and it is highly conservative to try to hold back progress in that way. It is in our interest to have the circulation of commodities achieved in a more efficient manner, which online retailing does – that is why proposals to tax it to reduce its competitive advantage over less efficient forms is reactionary.

    Instead we should look to how high streets and town centres can be repurposed to meet modern conditions. Turn the shops into much needed residential accommodation.

  5. Dodgy Geezer

    Always worth checking out the claims of left-leaning publications – they have a track record of… well, let’s just say that it’s worth checking.

    So I see this claim: “…..the average income of the poorest fifth of the population after inflation contracted by 1.6%,…..”. Which is unusual – I though that average incomes were climbing. So I looked up the reference. Sure enough, that figure was correct. But what’s this? There was a comment about this:

    “… Dominic Webber, the head of household income and expenditure analysis at the ONS, said: “While our report highlights a contraction in average income for the poorest fifth of the population, the longer-term trend has seen this group’s income rise the most. As such it may be too early to draw definite conclusions from this specific downtick…”

    So the slight downturn was simply a variation in the figure that was rising the most? Under the Tories? Isn’t it wonderful how the Left can turn a good news story for the Right into a bad news story by selective reporting…?

  6. steve

    This is what tipped the neo-libs on this thread into a fury of swivel-eyed indignation:

    “… anti-trade union laws and loss of the bargaining power of workers’ has reduced their share of gross domestic product (GDP) from 65.1% in 1976 to 49.4% at the end of 2017.”

    The failure of the neoliberal experiment is there for all to see.

    The only people to benefit were the corporate elite and their bought politicians.

  7. Dave Roberts

    Anti trades union laws have been around since the year dot. Most workers in this country have never been a member of a trades union and the high spot was probably the 1950s when maybe 25% of the working population were members. Discuss.

  8. Dodgy Geezer

    This article uses selective reporting and concealment of important data on a grand scale to try to make a political point where none exists.

    It is so blatant that many regular readers of LeftFootForward felt moved to comment and explain why it was just seriously wrong. And the writer is a professor of economics!

    Does he feel no shame at producing such misinformation in support of his chosen politics? Can’t he see that this kind of activity does not gain converts – instead it makes supporters feel that they are being lied to, and suspicious that the whole foundation of left wing politics is based on similar fraudulent arguments….

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