Daft planning rules are pushing up the price of food in shops

Allister Heath
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ou travelled abroad over Christmas, you will have noticed that goods in shops are often cheaper than in the UK. A uSwitch survey cited by the Institute of Economic Affairs shows that a food basket costs roughly a fifth more in the UK than it does in Germany, France and the Netherlands.

Once again, misguided rules are responsible for Britain’s woes and for the excessively high prices that are hurting all of us – and the poor especially badly. As explained in an excellent paper by Paul Cheshire, Christian Hilber and Ioannis Kaplanis, published by the London School of Economics’ spatial economics centre, planning policies, including the notorious “town centre first” ideology, have had a devastating impact on retailers’ productivity – and thus pushed up the cost of food and goods sold by supermarkets. The LSE paper – published in 2011 but which I finally read over Christmas – found that the total factor productivity of supermarkets has been reduced by at least 20 per cent since the late 1980s by planning policies. Three main factors have increased space costs and hence prices: the restriction of the total availability of land for retail; rules directly limiting store sizes; and rules concentrating retail development on central locations, rather than in out of town locations. Every minister should study these findings; we shall soon find out whether the coalition’s “relaunch” will actually lead to real action being taken on this vital front.

Older statistics suggest that at one stage in British cities the most expensive land for retail was 250 times as expensive as the most expensive retail land in comparable US cities. More recent estimates cited by the authors suggest that the cost of land for UK supermarkets is at least five to ten times greater than in similar Continental European countries. No wonder food and other retail goods are cheaper in those countries; excessive land prices are being passed on to the consumer, as ever.

Several studies, including one by the European Commission, have shown that the planning system also artificially restricts the competition between supermarkets.

The cost of other kinds of commercial property is also being propped up. Separate work by Cheshire and Hilber has found that planning red tape has massively hiked the cost of office space – thus also pushing up rents, the cost of doing business and hitting jobs. They found that the extra burden imposed by the UK’s land use planning system was “not only substantially higher than in any other country for which it was possible to get the requisite data but over 1999-2005 imposed the equivalent of a tax on construction costs of more than 800 per cent in the most constricted jurisdiction where demand was strongest – London’s West End.”

There is growing recognition that the UK’s housing policies are far too restrictive and that insufficient house building is a key reason for the excessive price of homes relative to incomes, especially in London and the commuter belt. But such restrictive policies are equally detrimental to commercial property – and are therefore pushing up retail prices, the cost of living and office costs.

I’m certainly not calling for skyscrapers in every back garden, or for the paving over of the countryside – just for a little more common sense, greater respect for ownership rights and a move towards a genuine market in property, including mechanisms to compensate losers from development. Planning rules are now one of the key factors preventing a genuine, sustainable recovery of the UK economy. The coalition needs to take urgent, radical action.

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