Weaker high streets are likely to suffer more as the Government’s temporary Covid-19 business supports are withdrawn.
During the pandemic, weaker high streets experienced fewer new vacancies than stronger high streets, and fewer new vacancies than they did from 2018 to 2020. This slowdown in the increase of vacancy rates in weaker places is partly the result of the Government’s Covid-19 business supports which favoured weaker high streets.
Although stronger high streets received less government support during the pandemic, they are likely to recover more quickly now that restrictions have been removed and high street footfall and spending is increasing. On the other hand, vacancy rate increases on weaker high streets are likely to accelerate as Covid-19-related business supports are withdrawn.
‘Stronger’ and ‘weaker’ are categories based on the proportion of productive, skilled, high-paying ‘exporting’ jobs in the city’s centre. These jobs, by selling to markets in other places and therefore bringing money into the local economy, support demand for retail and hospitality, and underpin the high street’s prosperity.
The two primary business supports introduced by the Government during the pandemic, business rates relief and business support grants, sheltered weaker high streets more, as Figure 1 illustrates.
Business rates relief benefitted businesses in proportion to their rent costs, as rates were calculated based on rateable values (an estimate of market rents). Weaker high streets benefited less from this support, as more of their businesses were already exempt from paying business rates under the pre-existing small business rate relief.
However, Covid-19 business support grants strongly favoured weaker high streets because:
Rateable values are higher on stronger high streets, with more businesses above the £51,000 threshold. In 2019, retail units in the city centres of London and Manchester had average rateable values of approximately £140,000 and £90,000. In Blackpool and Barnsley, the averages were only £24,000 and £26,000 respectively.
Grants that didn’t use this rateable value threshold system still favoured businesses on weaker high streets because the funding provided to local authorities to distribute onward was determined on a per-head or per-business basis, rather than taking into consideration the typical operating costs businesses faced.
As Figure 1 shows, businesses on higher-rent high streets received less support relative to their rent (as estimated by 2019 rateable values) than businesses on lower-rent high streets.
The effect of Covid-19 support on businesses in different cities can be seen by comparing the level of support that non-essential retail businesses in the centres of Blackpool, Manchester and London would have received between March 2020 and March 2022. These example businesses have rateable values equivalent to the average in their respective city centres.
Blackpool-based business received support between March 2020 and March 2022 that was equivalent to 36 months of rent. In Manchester and London, the typical city centre-based business only received support equivalent to 16 and 14 months of rent respectively.
Source: Government guidance for local authorities; Centre for Cities’ calculations
High streets where government support stretched further had fewer new vacancies, as Figure 2 demonstrates by extending the estimation procedure above to more cities.
Source: Local Data Company; Centre for Cities’ calculations
High streets in weaker cities not only had fewer new vacancies than high streets in stronger cities, but they also experienced fewer new vacancies compared to the increases they experienced before the pandemic. The vacancy rate increased in Blackpool by 7.8 percentages points and in Bradford by 6.5pp from 2018 to March 2020, but decreased by 1.5pp and 0.2pp respectively during the pandemic.
This slowdown of vacancy rate increases on weaker cities’ high streets during the pandemic is unlikely to persist.
Once temporary Covid-19 supports are withdrawn, vacancy rates on weaker high streets are likely to rise sharply. At the same time, vacancy rates on stronger high streets are likely to decline as they benefit from the return of ‘normal’ footfall and spending activity.
Cosmetic fixes to struggling high streets will not address the underlying reasons why those high streets are struggling – lack of footfall and consumer spending power. As Covid-19 supports are removed, cities will need to deploy measures such as the new ‘E’ commercial use class to adjust their high streets to the changing demands of consumers, workers and businesses with a particular focus on creating the conditions that are attractive to high skilled, high wage-paying businesses.
The old Use Class Order created and reinforced divides between cities, the new reforms put cities on a level playing field.
Our analysis shows that the city centres that were the strongest performers pre-pandemic were hardest hit by Covid-19
Cities Outlook 2022 looks in-depth at the state of UK high streets to get a sense of the short-term impact of the pandemic on Britain's town and city centres and the long-term consequences and implications this has for the Government’s levelling up agenda.
Chief Executive Andrew Carter is joined by Senior Analyst Kathrin Enenkel and Analyst Valentine Quinio to unpack the main findings and implications of Cities Outlook 2022
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