Boutique policy: what the Chancellor’s high street budget means for city economies

Parts of Hammond’s plan could help cities reshape their high streets, but underlying economic weaknesses must be addressed for long-lasting change

This blog was written in collaboration with Anthony Breach.

The Chancellor spotted a great deal for Britain’s economy by making city centres a key focus of last Monday’s budget. In among the tax and spending tweaks was the launch of a plan to save the high street. Philip Hammond offered high streets a 3-for-1 deal, announcing a trio of policies to help city and town centres adapt to changing consumer preferences, including a business rates holiday, a new Future High Streets Fund, and consultation on an extension to Permitted Development Rights (PDR).

The government’s acknowledgement that high streets must “adapt and diversify” is welcome. Past policy has focused too much on retail-led solutions which do not address wider economic issues, but as our recent research has shown, many city centres have far too many shops and need to remodel away from this dependence on retail. The government also recognises this, shown for instance in today’s announcement of a new pilot to facilitate meanwhile use for empty high street properties. In particular, having more office-based businesses in city centres will bring both more footfall into shops and boost customers’ spending power by providing them with better wages.

  1. The Future High Street Fund should focus on remodelling struggling city centres

The city centres most in need of reshaping will find it hard to attract private sector investors and developers given their low property prices and unproven markets, so remodelling may not happen without public sector involvement (and funds). In recent years the European Regional Development Funds (ERDF) have been a vital source of funds, allowing cities like Bradford and Huddersfield to develop new quality workspace in their city centres.

As ERDF support ends with Brexit, the announcement of a £650 million Future High Streets Fund is a helpful first step toward its replacement. The new Fund should be directed at the city centres with the highest vacancy rates and aim to support them to diversify. This means repurposing empty retail stock to other commercial uses and housing and developing additional high-quality office space too.

The Chancellor should go further than this though, by making the £38 billion National Productivity Infrastructure Fund available to make struggling city centres more attractive to investment from high-productivity businesses.

  1. A more flexible planning system could help high streets adapt, but PDR may not always be the right tool

In some cities, greater flexibility over a property’s use could encourage both a reduction in excess retail and address housing shortages. In Basildon, for example, average house prices are 10 times average household income, signalling an urgent need for more homes. And the city centre has far too many shops (62 per cent of commercial floor space is retail and 20 per cent lies empty). So it makes sense to convert some of these empty shops into homes, which also benefit from being within walking or cycling distance of workspaces, amenities and transport hubs.

But most cities are not like Basildon, and a combination of high housing demand and high vacancy rates is unusual. Introducing the proposed extension of PDR to retail – allowing change of use to office or residential without planning permission  – risks losing quality commercial space in city centres with healthy high streets and is likely to be ineffective in city centres most in need of help. We explored these issues ahead of the Budget, in an earlier blog.

Take Brighton for instance, the city also has high housing demand but a low high street vacancy rate of 8 per cent. If PDR made conversions easy in the city centre, successful shops which residents rely on could be discarded for new housing. At the other end of the scale, weak city centres with struggling high streets have low demand for both housing and retail, so take-up of PDR would be rare even though repurposing the buildings would help the high street.

So while the policy could benefit a select few cities, for the majority it would need to be handled cautiously to make sure it works with, not against, the city centre’s economy. Given the lack of control, local authorities have over PDR conversions, this could be very difficult.

  1. Business rates are a red herring – other factors are causing the high street’s struggles

The Chancellor yielded to pressure from retailers and offered smaller shops business rates relief. But placing the blame for the struggles of retail on a property tax (despite its flaws) is misleading and distracts from the underlying factors leading to the decline of high-street retailers. While the discounts provide some welcome short-term help, it is not an effective long-term fix.

Business rates are higher in city centres because they are attractive commercial locations, offering firms the benefits of density and access to many customers and workers. Rather than indicating that the tax burden is too high, the difficulties shops are having in paying the rates instead highlight the lack of footfall past their doors.

The most effective way for the Government to support high streets is to help cities overcome their weak economic performance. An empty high street is a sign of a lack of economic activity, without the spending power and footfall to keep amenities open. So to help the high street, policy must focus on improving the performance of the broader city centre economy both directly through improving commercial space and public realm, and indirectly by raising the skills of the cities’ workforces.

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