House of Commons - Environment, Transport and Regional Affairs

Select Committee on Environment, Transport and Regional Affairs Second Report

SECOND REPORT

The Environment, Transport and Regional Affairs Committee has agreed to the following Report:—

ENVIRONMENTAL IMPACT OF SUPERMARKET COMPETITION

INTRODUCTION

1. The large increase in out-of-town supermarkets has brought benefits, but it has also caused many problems. These stores have reduced the vitality of town centres; they have led to the closure of corner shops in towns and villages; they have produced urban sprawl and the loss of much valued countryside close to towns; and they have also encouraged the use of cars. Faced by these problems, the previous Government introduced a stricter planning regime in 1993 which aimed to curb their growth. It was stiffened in 1996 when a revised Planning Policy Guidance Note 6 (PPG 6) introduced sequential tests.[5] This policy has been maintained by the present Government, which has strengthened the regime by clarifying various aspects of the Guidance. Of course, the change in policy has not prevented the many out-of-town supermarkets which were built in the 1980s and early 1990s from continuing to have a deleterious effect on town centres. Moreover, new out-of-town sites have continued to open: some as a result of planning permissions granted before 1996; and others have been granted permission since 1996 in circumstances allowed under the guidance.

2. Although the revised planning guidance has only been in place for three years, a number of threats to it arose in the summer of 1999, notably:

the Wal-Mart takeover of Asda and press speculation that, at a private meeting with the Prime Minister, an agreement had been reached to relax the planning regime.

the Director General of the Office of Fair Trading's referral of supermarkets to the Competition Commission with his comment that there were significant barriers to entry which were related to aspects of the planning system.

The desirability and effectiveness of planning policy which is aimed at concentrating retail development in existing areas was being questioned. Accordingly, we decided to hold a short inquiry seeking views on the environmental impact of supermarket competition. We received 32 memoranda covering a wide range of environmental concerns. We took oral evidence from four sets of witnesses. We are grateful to all those who gave evidence, and to our Specialist Adviser, Richard Bate, for his expert guidance. Since we began the inquiry, there has been concern about a new threat to the planning guidance, namely:

the Chancellor of the Exchequer's announcement in his pre-Budget Report of the Government's intention "to modernise the planning system so that it supports competition and innovation and does not provide a barrier to the growth of either new and existing companies"[6]

We sought clarification of this statement and consider its implications.

3. In this report we concentrate on the main concerns of the evidence:

- whether the main thrust of the planning guidance in PPG 6 is right;

- what modifications are required to existing Government policies to protect town centres and corner shops; and

the threats to existing policy.

WHETHER THE MAIN THRUST OF PLANNING GUIDANCE IS RIGHT

Reasons For Introducing the Planning Guidance

4. The number of superstores increased from 457 in 1986 to 1102 in 1997.[7] Their share of total grocery spending increased from 29.9% in 1987 to 53.7% in 1996. Total grocery superstore turnover grew from £9,188 million to £34,005 million over this period (in current prices).[8]

5. The consequences of this increase on other retailers are striking. Witnesses drew attention to the way out-of-town stores had brought about "a decline of traditional town centres"[9] and had played a part in producing a notable characteristic of modern England, the demise of the corner shop. The number of independent grocers fell from 116,000 in 1961 to only 20,900 in 1997.[10] Several witnesses provided us with vivid, but depressing examples of this process. The Kirby Lonsdale Association told us that a proposed supermarket in that town meant that "the survival of village shops in the Lune Valley is at stake, as also the traditional shops - butchers, bakers and greengrocers - in Kirby Lonsdale. Our town is small with a population of only 1,600. A further 600 people live in surrounding villages".[11] As a result of a store opening in nearby Carnforth, eight small village shops were forced to close. Robbo's Newsagents in Kirby Stephen told the Committee of the enormous problems caused when a supermarket in the town had begun to sell newspapers at half price to all its customers.[12] Caroline Cranbrook informed us of the research which she had undertaken in 1997 about the impact an edge-of-town superstore would have on food retailing near Saxmundham. She interviewed 81 shops selling food in the seven market towns and 19 villages within the supermarket impact area. 61 of the 81 shops thought they would be so badly affected by the superstore, that sooner or later they would go out of business, some of them immediately.[13]

6. These are not mere isolated examples. This evidence is supported by the "most comprehensive assessment of the retail and transport implications of foodstore development ever undertaken", The Impact of Large Foodstores on Market Towns and District Centres, which the DETR published in October 1998. It concluded:

"Our research has shown that large foodstores can and have had an adverse impact on market towns and district centres. The level, and consequences, of impact will vary depending on the particular local circumstances of the centres concerned. Smaller centres which are dependent to a large extent on convenience retailing to underpin their function, are most vulnerable to the effects of larger foodstore development in edge-of- centre and out-of-centre locations."

The study found a particularly bad case at Fakenham where the opening of an out-of-centre Safeway store had led to a decline in market share for the town centre convenience sector of 64%. At Warminster the decline had been even worse, 75%.

7. To address consequences such as these, Governments have published planning policy guidance on shopping and town centres (known as PPG 6). Three versions of this note have been issued:

the first was introduced in 1988 with "a clear presumption in favour of new development";[14]

this was revised and the second version in July 1993 provided more protection for town centres;

the third version published in 1996, following a report by the Environment Committee (one of our predecessor Committees in the last Parliament), introduced the "sequential" test, which stated that the first choice for new developments should be town centre sites, followed by edge-of-town and last of all out-of-town sites.[15] Permissions for out-of-town stores would only be given when suitable town centre or edge-of-town sites were not available.

Subsequently, the Department has issued clarification in respect of extensions (they should be subject to the sequential test)[16] and need.[17]

8. The evidence we received indicated very widespread support for the PPG 6. We took oral evidence from CB Hillier Parker, which is part of CB Richard Ellis, "the largest global real estate adviser in the world".[18] The firm has advised most of the major food retailers on a range of property and planning matters and regularly acts for a number of retail developers across the UK. It has also acted for more than 250 planning authorities and advised on the effects of more than 50 new stores or store extensions in recent years.[19] It concluded:

" we consider that PPG6 and subsequent Ministerial clarifications provide a coherent and relevant policy basis for considering proposals for development of new food supermarkets and superstores."[20]

The written evidence of other witnesses, including the Royal Town Planning Institute and the Local Government Association, supported these conclusions.[21]

9. With the exception of Safeways, the major supermarket chains also accepted the planning guidance. They have started to build "smaller local convenience food stores" in urban centres and in the suburbs in response to PPG6. These stores, such as Sainsbury's Central and Local and Tesco Metro and Express, tend to serve "more discrete localised catchment areas which places less dependence on access by car". Supermarket chains which had made this investment now wanted a period of certainty in the planning laws. We were informed:

"having now adapted our store development activities to meet the aims of PPG 6 and related policy statements, Sainsbury has been concerned by recent speculation about possible changes to these policies. The company welcomed the statement made by the Minister in June confirming the Government's commitment to PPG6".[22]

10. Existing planning policy guidance on Town Centres and Retail Developments is widely supported. The evidence is clear: leading experts on planning and retailing, planning associations, local authorities and almost all the supermarkets themselves, support the central thrust of policy laid down in PPG6. We have rarely seen so much support for a Government policy.

WHAT MODIFICATIONS ARE REQUIRED TO EXISTING GOVERNMENT POLICIES?

Modifications to Planning Policy

11. As a result of the planning guidance there has been a reduction in the number of new out-of-town stores. Nevertheless, they have continued to be built. This is partly because of old planning permissions given before 1996, but it is also because supermarkets are still seeking to build or extend large superstores within the terms of the planning guidance. Asda, for instance, is proposing major extensions to three stores. In view of the continued pressure to create larger stores and to give better protection to town centres, some modifications were proposed to the interpretation of PPG 6, largely to ensure a more consistent interpretation of the guidance.

12. Paragraph 1.10 of PPG6 lays out the determinants of where supermarkets should be built. It states

"in drawing up their development plans, Local Planning Authorities should, after considering the need for new development, adopt a sequential approach to selecting sites for new retail development. Both Local Planning Authorities and developers selecting sites for development should be able to demonstrate that all potential town centre options have been thoroughly assessed before less central sites are considered for development for key town centre uses. If, however, there is no need or capacity for further developments, there will be no need to identify additional sites in the town."

It adds that where out of town centre developments are proposed, a number of factors should be taken into account, including "the likely impact of the development on the vitality and viability of existing town centres, including the evening economy, and on the rural economy."[23] In addition, planning authorities should take note of their accessibility by choice of means of transport and their effect on travel patterns and car use.

13. The application of the sequential approach caused most concern. A key issue is the availability of appropriate town centre sites for new stores. Paragraph 1.12 of PPG 6 states:

"Local planning authorities should be sensitive to the needs of retailers and other town centre businesses and identify, in consultation with the private sector, sites that are suitable, viable for the proposed use and likely to become available within a reasonable period of time."

14. In its Report in 1997 the Environment Committee considered that the interpretation of the sequential approach may require attention. It recommended that

"the Department of the Environment keep under review the clarification of Planning Policy Guidance Note 6, with particular reference to the interpretations of the terms "suitable" and "available" as they are applied to town centre sites. The Department should act swiftly in the event that Ministers are persuaded of the need to issue such clarification."[24]

Several witnesses believed that the time had come for such clarification. There is a concern that inappropriate planning permissions are still being granted for out of town centres.

15. Witnesses from CB Hillier Parker told us that the definition of suitability was contentious. They said that suitability "is normally taken by the supermarket operators and developers to mean suitable for the size of store which they wish to develop", ie. the size of unit required to meet the retailers own commercial and operational needs and aspirations. In contrast, "local planning authorities generally favour the range of goods interpretation of suitability, which considers the extent to which the proposed developments can be broken down into its constituent parts, eg food sales, clothing sales, etc.."[25]

We were also told "our concern is that this interpretation will only encourage retailers to develop larger, less flexible store formats in order to justify out-of-centre sites. It must, therefore, be questionable as to whether this would be consistent with Government policy to put town centres first."

16. Availability was the second concern of witnesses. Some developers have suggested that where there is a need for a new supermarket, out-of-town locations should be approved unless alternative sites are available immediately. This proposal was rejected by a number of witnesses, but, on the other hand, it was not considered appropriate to oppose new developments on the basis of an alternative, more central, location, unless there were a realistic prospect of that site coming forward within a reasonable period of time. It was suggested that what constitutes a reasonable period of time depended on the urgency of the need. As a minimum the authority should "be able to demonstrate its, in principle, support for development on the site in question. It should also be able to indicate what support it is prepared to offer in the land assembly process, using its CPO powers if necessary."[26]

17. The Environment Committee in 1997 recommended that top priority be given to research on the cumulative impact of retail developments.[27] It also called on the Government to insist that full impact studies should accompany all applications for significant retail development, in or around small or market towns.[28] CB Hillier Parker told us that, following their major research project to quantify the effects of development on the vitality and viability of nearby town centres, there was a need to improve further the consistency and objectivity of retail impact assessments, for example, by the more extensive use of up-to-date survey material. Compulsory post-opening surveys should be introduced to measure objectively the impact of new stores. Such a measure would make it possible to identify the likely consequences when planning new developments.

18. We recommend that the Government clarify what is meant by the statement in PPG 6: 'sites in town centres which are suitable, viable and available within a reasonable time period'. We consider unacceptable an interpretation which defines 'suitable' as meaning suitable for the size of store and format which retailers wish to develop and which could mean that they would seek to develop sizes and forms of store which could only be met out-of-town. Compulsory post-opening surveys should be introduced.

Smaller Stores

19. Although the larger supermarket chains have begun to build smaller stores, companies such as Aldi and Lidl, which specialise in small supermarkets, told us that they found it difficult to get planning permission for their developments because "concentration on curbing large scale out- of-town superstore development has led to the adoption of a somewhat dogmatic approach by local authorities in the assessment of all supermarkets".[29] They argued that there was a lack of recognition that their type of store could help maintain the vitality of town centres and suburbs.[30] While supporting the principal thrust of restricting out-of-town development, they sought slight modifications of policy. In particular, local authorities should ensure that they

identified sites for stores in urban areas in local plans. If they did this and assessed sites for their position in the retail hierarchy within the overall environmental objectives of development plans, there was a greater likelihood that "sustainable land use and transport objectives would be met".[31]

Measures to Improve City and Town Centres

20. If town and city centres are to be vital and viable, steps must be taken to make shopping in them more attractive. Moreover, if more out of town sites are to be avoided, local authorities must ensure that appropriate town centre sites are made available. Planning Policy Guidance Note 6 gives a long list of measures which should be taken to encourage appropriate investment in town centres.[32] The Environment Committee also made a number of recommendations about this subject. In both of its Reports it called for tax relief to be given on private contributions for town centre improvement schemes.[33] Witnesses made similar recommendations: councils, "especially in identified urban priority areas, should be helped by way of additional funding support, perhaps via an appropriate regeneration bank, to expedite land assembly and the urban regeneration process".[34] The use of Compulsory Purchase Order (CPO) powers was of particular importance: "local authorities should be positively encouraged to use CPO powers so as to regenerate declining centres and to plan positively for new retail provision".

21. Supermarkets can play an important role "as an anchor" in town centres.[35] They attract shoppers who will also use other shops in the centre. Local plans must make adequate provision for supermarket sites in town centres if stores are not to be built out-of-town. Local authorities must use CPO powers to assemble suitable sites. The Government should publish its CPO review as a matter of urgency.

22. In future, we expect that, in all but exceptional circumstances, new supermarkets will be in urban centres or on edge-of-town sites, which can be the best site in some historic towns, where a supermarket in the town centre could be very damaging.

23. However, if we are to have more supermarkets in town centres, they must be built to a much better design than most existing stores. PPG6 includes a section on design.[36] It states that

"the design of proposals for retail development should have proper regard to their relationship with their surroundings and should, where appropriate, develop and enhance local character. Design should avoid presenting blank frontages to town centres or being inward looking. Designs which add interest and variety, and which reflect local context, should be encouraged".

This advice is important and timely. We are pleased that some supermarkets are placing more emphasis on design: Tesco stressed its importance in its evidence.[37] Nevertheless, the Urban Task Force, headed by Lord Rogers, considered that some developers had still been reluctant "to tailor their proposals to fit the grain of existing buildings and available sites in town centres" Moreover, "we have also suffered from monotony of design that has much to do with corporate branding and little to do with respect for local urban form". The Task Force urged the Government to address this problem, "partly through a revision of PPG6."[38]

24. The Government and local authorities must take steps to ensure that the supermarket chains improve the design of town centre supermarkets. As the Urban Task Force proposed, town centre supermarkets must be built to a better design which is appropriate to the surrounding buildings and not to a standard format which is much the same in each town. We note that PPG6 mentions the need for good design, but we are concerned that it has not been sufficiently effective. We recommend that stronger supplementary guidance to PPG6 be issued to make very clear to local planning authorities and to developers the need for better design for supermarkets which is appropriate to the surrounding buildings. Similar advice must be contained in the long awaited publication on Design in the Planning System.

Car Parking and Traffic Generation

25. PPG 6 acknowledges that out-of-town supermarkets generate additional traffic growth. It also recognises that since such stores offer very generous amounts of free car parking to their customers they can have an unfair competitive advantage over the town centre retailers.[39] This analysis of traffic generation, which was made by the last Government and is accepted by this Government, was supported by almost all witnesses, with the exception of Safeway. This company argued:

"Fact: shopping as a category only represents 11% of average car mileage and food shopping is only a proportion of that;

Fact: average family shop weighs around 80 pounds. Public transport is not, and never will be, a viable option for this type of shop, given that more than 70% of the population own cars and most of those without one want one, car manufacture and car ownership is an important part of the UK economy. It would be unreasonable not to expect those that do own cars to use them for food shopping.

Fact: town centre and out of centre location does not appear to have a major influence in modal choice for shopping travel. A study conducted in 1994 by JMP Consultants for a consortium of highway authorities, showed the modal choice was car, 87% in town centres and 93% in out-of-town centres".[40]

26. DTI officials offered some support for Safeways. Mr Hopson of the DTI referred to an article in Retail Week by Vivian Nathan, which suggested that "the changes in car parking arrangements and charges and all those kind of things would not actually make very much difference at all to people's shopping habits"; over 70% of people who had responded to a survey in Retail Week, recently had said that they would not change their shopping habits irrespective of car parking arrangements.[41]

27. Most other witnesses, however, had different views. The Countryside Agency told us that directing new supermarket development to town centre sites made it possible to contain or reduce car dependence. Mr Goddard of CB Hillier Parker explained to us how the Safeway statistics could be accurate, yet perfectly consistent with the accepted view of Government and other witnesses. He said:

"the research clearly and consistently shows that town centre and, to some extent, edge-of- centre stores achieve a higher degree of linked trips, in other words people do more than one thing at the same time and also a higher modal split in favour of walking and public transport. I think the Safeway research demonstrates another important point to bear in mind which is that most people who have access to a car will use it when doing their main food shopping. The two statements are not contradictory".[42]

28. Whilst we were undertaking our inquiry, the Government issued a draft policy planning guidance note on transport and planning, PPG13. The key feature of this note is that it introduces minimum instead of maximum parking standards for new developments. We questioned the Minister about concerns that the maximum standards for out-of-town parking proposed of one space per 18 to 20 square metres gross floor space appeared too generous. He did not give us a direct answer to our questions on this subject, but replied that in addition to the introduction of maximum limits, much more emphasis was to be placed on access through all transport modes to out-of-town developments. Furthermore individual local authorities would have to adopt similar and more consistent policies "because there has been very substantial inconsistency between individual local authorities in their decisions".[43] However, he agreed that out-of-town stores would retain an advantage. Nevertheless, "we can achieve a more level playing field than we are seeing at the moment", he told us.[44] He added that there might be individual circumstances where local authorities would seek to impose a charge on supermarket car parking under a section 106 agreement relating to planning applications, but that was "a matter for the local authority".[45] We welcome the proposal in the new PPG13 that there should be maximum, rather than minimum parking standards. However, we are very concerned that they will be too lax.

29. As the Minister pointed out, the new PPG13 will apply to new applications (including those for remodelling or redeveloping existing centres) but "they will not apply retrospectively to existing centres that have been developed prior to PPG13 in its revised form coming into application".[46] Our predecessor Committee was also concerned about this situation. It noted that a "levy on out-of-town car parking might be a straightforward way of levelling the playing field". It also expressed concern about the application of the business rate on car parks at out-of-town developments.[47] The large amounts of free car parking offered by existing out-of-town supermarkets gives them an enormous competitive advantage over city centre stores. In addition supermarkets at these sites generate more car use, making the situation on already congested roads worse. The situation needs to be addressed urgently. We recommend that the Government outline, as a matter of urgency, the measures it proposes to address this situation. One matter it should consider was raised by our predecessor Committee: the level of business rates at out-of-town and city centre stores.

THREATS

The Wal-Mart take-over of Asda

30. Earlier this year the US retailer Wal-Mart bought Asda. This has led to press reports speculating about its consequences, in particular whether it would lead to a relaxation of planning controls. The Minister for Planning assured the Committee that the Prime Minister's conversations with Wal-Mart had not included a discussion of this issue.[48] Asda also denied press reports both that it was intending to seek a relaxation of planning controls or that it was seeking to buy up and redevelop existing shopping centres. Its aim was to compete on price. We were told "in essence, we still firmly believe we want to operate within the PPG6 guidelines. We understand the need for them and we want to operate within them."[49]

31. Asda told us that it had plans to develop 13 stores. Only three of these it describes as being not in one of the locations preferred by PPG6. Three are in inner city areas. The 13 new stores would represent a 5% increase in selling space.[50] The proposals include three superstores which would be about 95,000 square feet. These would be extensions of three existing stores which are currently around 75,000 square feet.[51] Subsequently, Asda announced plans to open up to 50 Asda 'Fresh' small stores in the next five years, averaging 25,000 sq. ft. The first opened in Tilehurst, Berkshire, with a second store planned for Kingshill, Kent.[52]

32. The Asda chain of supermarkets in the UK is very different from those run by Wal-Mart in the USA. The average size of the Asda store is 42,000 square feet, whereas the smallest Wal-Mart store is 100,000 square feet, the biggest 200,000 square feet and the average circa 140,000.[53] Wal-Mart have about 80% non-food and 20% food retailing; in Asda stores the situation is the reverse.[54] We were assured that Asda had no intention of radically changing the present balance: essentially in the last five years a mix of square footage in the formats and ranges were "pretty much the same apart from two or three key areas where George clothing has expanded and probably health and beauty to a degree".[55]

33. However, while the Asda witnesses refuted press reportsthat they were seeking changes to planning regulations, they did indicate that they were not speaking for Wal-mart. Moreover, when asked whether the company would move to a different product mix and a different development mix, we were told "Wal-Mart are clear that they want us to experiment".[56] We also note that, although the witnesses from Asda refuted press reports that the company would seek to relax planning controls or buy up and redevelop existing sites, they could only guarantee that the company's present policies would apply for the next 12 to 18 months.[57]

The Competition Authorities

34. The revised planning guidance has only been in existence since 1996, but the evidence is that it is working effectively and it is widely accepted by those with any expertise in planning. Nevertheless, there has been a strand of thinking which has been critical of planning policy. It has been characteristic of those who have emphasised the need for competition, while paying little attention to the wider consequences of the growth in out-of-town supermarkets. In 1998, the McKinsey Report, Driving Productivity and Growth in the UK Economy, argued that planning controls would increase productivity in the retail sector. It stated:

"If PPG6 were removed, UK food retailing would be able to continue its evolutionary process. This would entail further expansion of the modern format, especially large format retailers - and further contraction of the traditional sector. There are social arguments about displacing traditional high street retailers. From a purely economic perspective, however, the benefit would be a modest productivity boost and hence lower prices."

"In effect, PPG6 may be creating barriers to the entry / expansion of the future's most productive retailers."

"Allowing food retailers to expand their store size significantly would allow UK food retailers to expand their non-food offer. While this may increase the productivity of the food retail industry only marginally, it would allow food retailers to challenge more aggressively general merchandise retailers, and, perhaps, improve the performance of the broader retail industry."

35. This analysis has been widely criticised by experts on retailing and planning issues. Mr Goddard of CB Hillier Parker told us:

"I think that some of the conclusions of that Report are a little inconsistent. My reading of the Report is that it highlights the food retailing sector in the UK as benchmarking globally. In effect, in this country, we set the standards by which retailing, both in the USA and the rest of Europe are judged, and yet, there is the suggestion that the UK retail sector could be more productive if planning restrictions were lifted."[58]

The Minister, Mr Raynsford, observed that the McKinsey Report itself indicated that the biggest single factor in relation to the competitiveness of retail stores was labour productivity. Both Mr Goddard and Mr Raynsford argued that planning restrictions in this country had not significantly affected the productivity of the UK grocery sector. Indeed, Mr Goddard considered they had "actually engendered a more efficient and innovative retail sector in this country".[59]

36. Despite such criticisms of the analysis in the McKinsey Report, in April 1999, under powers available under Section 50 of the Fair Trading Act, Mr Bridgeman, the Director General of Fair Trading referred the supply of groceries from supermarkets to the Competition Commission. He stated in a letter of 24 March 1999:

"Land and related transactions increasingly impact on the cost structure of competing firms. I am particularly concerned about escalating land costs, planning delays and site development costs and the extent to which they contribute to the cost structure of firms. Overall, I believe that significant barriers now exist, so the potential competition from new entrants may not be an effective constraint on the pricing behaviour and other strategies adopted by the major grocery retailers".

We asked Mr Bridgeman what contact he had had with officials of the Department of the Environment. He told us that there had been discussions in the early part of 1999 which arose from misleading press commentary to the effect that the OFT wanted to vary DETR planning policy, as it was perceived to be a barrier to market entry. He informed us in June:

"my officials advised the DETR that while the existence of planning constraints were indeed relevant to our consideration of barriers to entry, we did not intend to express a view on the Government policy on the provision of out of town supermarkets. We can, however, assess its effect on the process of competition".

What surprised us is that the OFT had made no contact with the DETR until after the Director General had issued the letter stating that he was minded to refer the supermarkets to the Competition Commission. We subsequently (in November) asked whether his officials had had contact with other planning experts. We were told that the OFT had not consulted any planning specialists or consultants, but had retained the services of King Sturge in the capacity of property consultants. The Director General had met chief executives of the major supermarkets who had made him aware of "their view of the increasing importance of planning when considering further developments".[60]

37. The Minister of Planning expressed himself trenchantly on the Office of Fair Trading's manner of proceeding. He said:

"we regret that the Office of Fair Trading did not approach this Department before they made their comments, but we have given our evidence to the Competition Commission and that has set out the view that we have that planning is essential for the preservation of our town centres and a proper framework for retail in the future and that competition does exist and can continue to exist within that framework".[61]

38. The Competition Commission's investigation includes an examination of land and planning issues. It has sent separate questionnaires on these and related matters, first, to all the multiple stores that are within its terms of reference and, second, to around 80 local authorities with planning responsibilities, seeking factual information and views on the operation and land use planning system. The supermarkets are expected to reply by mid-December and the local authorities by mid-January.[62] The Competition Commission is to report by April 2000, but may well seek an extension.

39. Patricia Hewitt, the DTI Minister told us that once the Secretary of State for Trade and Industry (Stephen Byers MP) had received the Report, it would be for him to consider what action to take.[63] Mr Raynsford told us:

"the Commission's findings will obviously be presented to Stephen Byers, my colleague in DTI, and it will be for him to decide on reaction to them. As far as planning policy is concerned, I think I made it very clear that we would believe the existing framework set out in PPG6, with the clarifications that we have added in the course of the last two years, does provide the right framework for the future, and that a relaxation of that would be highly dangerous to the overarching policy of supporting town centres and ensuring that we do achieve the urban renaissance that this Department is working towards."[64]

He added "I have made it quite clear that our overarching policy has to be support and encouragement for existing town centres. That remains a clear commitment."[65]

40. We are uncertain what is to be gained from the OFT's referral or the Competition Commission's investigation in so far as they apply to the planning regime for the following reasons. First, while it is well known that planning policy is designed to restrict land use, and that, as a result, land prices are higher than they would otherwise be if there were no restrictions on their use,[66] the evidence is that the planning regime is not a significant barrier to entry. Witnesses from CB Hillier Parker stated "planning controls would be only one of a number of significant impediments to new entrants coming in, in order to set up a new branch network, but obviously the planning process has not been an impediment to Wal-Mart entering the market".[67] These consultants observed that relaxing planning controls would not generate a significant price reduction or bring about greater price competition. There is already intense competition between retailers on a national scale. We were told: "at present, we have certainly the tightest planning regulations governing new food store development and expansion of stores there have ever been, and yet we are in the process of probably what is one of the most competitive price wars in the grocery sector that certainly I have ever experienced".[68] Mr Goddard added that the food retail market in the UK is now a very well developed market. He believed that in practical terms, new entrants into the UK market would now come through mergers and acquisitions rather than through a retailer trying to set up from scratch.[69]

41. Secondly, we consider it likely that the main beneficiaries of any weakening of planning control over grocery stores would be the existing major supermarket operators. They are well-positioned to take advantage of opportunities to develop out-of-town sites which might be made available. This could be expected to increase the share of the grocery market which they hold, further driving out competition from smaller stores (which are located in existing towns and villages). Furthermore, if substantial numbers of additional new stores were allowed, this would enable large supermarket chains to use space at some existing out-of-town stores for non-food retailing, by taking advantage of permissions some years ago without conditions to restrict sales to food items. This could have very damaging consequences for town centres.

42. As PPG6 makes clear, policy is not intended to restrict competition, but to ensure new sites are located in appropriate locations, usually in town centres where they will promote the vitality and viability of those town centres. The Minister's clarification of PPG6 made clear that there was no need to show that there was need for new retail development in a town centre. In a Parliamentary Answer on 11 February 1999, Mr Caborn, the then Minister of Planning, stated that "proposals for new retail or leisure development, which accord with an up-to-date plan strategy or are proposed on sites within an existing centre, should not be required to demonstrate that they satisfy the test of need because this should have been taken into account in the development plan".[70]

43. Mr Raynsford told us that "The planning system allows open competition between different retailers. It does not distinguish between different retailers and it would be improper for it to do so. It does seek to ensure that there are lively town centres where competition can apply, where there is a choice of different retail outlets".[71] He went on to say "Planning policies must have some impact, but provided they are applied fairly that impact is shared equally by every retail business, there is no partiality shown towards one type of business or another, and it would be wrong for the planning system to move in that direction".[72] DTI Ministers agree with this view.[73] We support the Minister for Planning's statement on competition. It is a well-established principle of planning control that planning decisions should not favour one company against another but should be even-handed between firms. The task of planning is to regulate the uses to which land may be put, not which firms should take up the opportunities on offer.

44. Finally, even if planning restrictions were a greater barrier to entry than the evidence indicates they are, the relaxation would not be justified because the effect on town centres and village shops would be far too damaging.[74]

The Pre-Budget Report

45. Further uncertainty was created when the Chancellor's Pre-Budget Report announced that the planning system was to be modernised so that it supports competition and innovation (and) does not provide a barrier to the growth of either new or existing companies. It was unclear what this meant and the Committee sought clarification from the DETR. The Department assured the Committee that the references to planning and competition (referred to in paras 3.57 and 3.58) in the Pre-Budget Report referred not to PPG 6 or to retail policy, but to PPG 11 on Regional Planning, and, in particular, to the Sustainability Appraisals of regional plans, which will assess how plans are promoting economic as well as social and environmental objectives.

CONCLUSIONS AND RECOMMENDATIONS

46. Out of town supermarkets have had serious and undesirable effects on town centres and village shops. The evidence overwhelmingly supports the existing planning regime. It requires a little modification to ensure that it works more effectively and gives town centres more protection. However, although the new policy has only been in operation since 1996, the OFT has created doubt and uncertainty by referring planning matters to the Competition Commission. We are appalled that before referring planning matters to the Competition Commission, the OFT took no evidence from planning experts and did not consult the DETR. In failing to take into account such expert evidence, it has behaved irresponsibly. The Commission is to report in April 2000, but may well ask for an extension. Its report will then be considered by the Secretary of State of Trade and Industry. There is likely to be uncertainty about planning policy until after the next election.

47. We commend Nick Raynsford MP, the Minister for Planning, for his robust defence of Government policy. He made clear that the DETR will not change its policy, whatever the findings of the Competition Commission in respect of planning. We must conclude that the Competition Commission's continued consideration of planning policy is a waste of time.

48. We note that Mr Raynsford was supported by Patricia Hewitt, the DTI Minister, who wanted to see vibrant town centres and did not want to go back to the situation where they were threatened by an ever increasing number of out of town sites. On the other hand, she told us that if the Competition Commission were to make recommendations or adverse findings in respect of planning issues, that the Secretary of State for Trade and Industry would have to discuss them with the Secretary of State for the Environment, because the policy decisions would fall to that Secretary of State. She added "the Director General of Fair Trading has raised the planning question. It clearly falls within the terms of reference of the Competition Commission and the progress report that was published on Monday by the Commission indicates their awareness of the need to complete the inquiry as quickly as they can".[75]

49. Despite the DTI Minister's support for vibrant town centres, we are concerned that the competition authorities and some Treasury and DTI officials, who do not understand the planning system, may now be seeking relaxations in it and may hope that such a policy can be introduced after the report of the Competition Commission. This would be disastrous. A relaxation of the planning regime in respect of out-of-town sites would do little to encourage new entrants. It would run the risk of returning to the laissez-faire policies of before 1993, which did so much damage.

50. We are also concerned about the Pre-Budget Report's references to planning and competition. We are pleased by the clarification provided to us by the DETR which indicates that the references in that Report do not apply to the retail sector and are not meant to change the existing situation whereby the planning system allows open competition between different retailers. However, if it is intended to encourage companies to set up on out-of-town, greenfield, sites, the effects on urban regeneration must be carefully assessed. This is a matter we intend to consider in detail in our next inquiry into the proposed Urban White Paper.

Our principal conclusions and recommendations are:

Existing planning policy guidance on Town Centres and Retail Developments is widely supported. The evidence is clear: leading experts on planning and retailing, planning associations, local authorities and almost all the supermarkets themselves, support the central thrust of policy laid down in PPG6. We have rarely seen so much support for a Government policy. (Paragraph 10).

We recommend that the Government clarify what is meant by the statement in PPG 6: 'sites in town centres which are suitable, viable and available within a reasonable time period'. We consider unacceptable an interpretation which defines 'suitable' as meaning suitable for the size of store and format which retailers wish to develop and which could mean that they would seek to develop sizes and forms of store which could only be met out-of-town. Compulsory post opening surveys should be introduced. (Paragraph 18).

Local plans must make adequate provision for supermarket sites in town centres if stores are not to be built out-of-town. Local authorities must use CPO powers to assemble suitable sites. The Government should publish its CPO review as a matter of urgency. (Paragraph 21).

In future, we expect that, in all but exceptional circumstances, new supermarkets will be in urban centres or on edge-of-town sites, which can be the best site in some historic towns, where a supermarket in the town centre could be very damaging. (Paragraph 22).

However, if we are to have more supermarkets in town centres, they must be built to a much better design than most existing stores. (Paragraph 23).

We note that PPG6 mentions the need for good design, but we are concerned that it has not been sufficiently effective.

We recommend that stronger supplementary guidance to PPG6 be issued to make very clear to local planning authorities and to developers the need for better design for supermarkets which is appropriate to the surrounding buildings. Similar advice must be contained in the long awaited publication on Design in the Planning System. (Paragraph 24).

We welcome the proposal in the new PPG13 that there should be maximum, rather than minimum, parking standards. However, we are very concerned that they will be too lax. (Paragraph 28).

The large amounts of free car parking offered by existing out-of-town supermarkets gives them an enormous competitive advantage over city centre stores. In addition supermarkets at these sites generate more car use, making the situation on already congested roads worse. The situation needs to be addressed urgently.

We recommend that the Government outline, as a matter of urgency, the measures it proposes to address this situation. One matter it should consider was raised by our predecessor Committee: the level of business rates at out-of-town and city centre stores. (Paragraph 29).

We are uncertain what is to be gained from the OFT's referral or the Competition Commission's investigation in so far as they apply to the planning regime. (Paragraph 40).

We support the Minister for Planning's statement on competition. It is a well-established principle of planning control that planning decisions should not favour one company against another but should be even-handed between firms. The task of planning is to regulate the uses to which land may be put, not which firms should take up the opportunities on offer. (Paragraph 43).

Even if planning restrictions were a greater barrier to entry than the evidence indicates they are, the relaxation would not be justified because the effect on town centres and village shops would be far too damaging. (Paragraph 44).

The evidence overwhelmingly supports the existing planning regime. It requires a little modification to ensure that it works more effectively and gives town centres more protection. However, although the new policy has only been in operation since 1996, the OFT has created doubt and uncertainty by referring planning matters to the Competition Commission. We are appalled that before referring planning matters to the Competition Commission, the OFT took no evidence from planning experts and did not consult the DETR. In failing to take into account such expert evidence, it has behaved irresponsibly. The Commission is to report in April 2000, but may well ask for an extension. It will then be considered by the Secretary of State of Trade and Industry. There is likely to be uncertainty about planning policy until after the next election. (Paragraph 46).

We commend Nick Raynsford MP, the Minister for Planning for his robust defence of Government policy. He made clear that the DETR will not change its policy, whatever the findings of the Competition Commission in respect of planning. We must conclude that the Competition Commission's continued consideration of planning policy is a waste of time. (Paragraph 47).

we are concerned that the competition authorities and some Treasury and DTI officials, who do not understand the planning system, may now be seeking relaxations in it and may hope that such a policy can be introduced after the report of the Competition Commission. This would be disastrous. A relaxation of the planning regime in respect of out-of-town sites would do little to encourage new entrants. It would run the risk of returning to the laissez-faire policies of before 1993, which did so much damage. (Paragraph 49).

We are also concerned about the Pre-Budget Report's references to planning and competition. We are pleased by the clarification provided to us by the DETR which indicates that the references in that Report do not apply to the retail sector and are not meant to change the existing situation whereby the planning system allows open competition between different retailers. However, if it is intended to encourage companies to set up on out-of-town, greenfield, sites, the effects on urban regeneration must be carefully assessed. This is a matter we intend to consider in detail in our next inquiry into the proposed Urban White Paper. (Paragraph 50).

5 Under the sequential test the first choice for new developments should be town centre sites, followed by edge-of-town sites and last of all out-of-town sites. Permissions for out-of-town stores are only given when suitable town centre or edge-of-town sites are not available. See below paragraphs 12 to 13. Back

6 Cm4479, page 41 Back

7 See letter from Mr Raynsford (SC 18A). He quotes the figures from Verdict Research Limited who use a threshold of 25,000 sq feet trading (ie net) floor space. Back

8 SC 19. Back

9 SC 16. Back

10 SC 19. Back

11 SC 01. Back

12 SC 02. Back

13 SC 08. Back

14 SC 19. Back

15 In producing their policy, this Government and the last accepted many of the recommendations of the Environment Committee. These were, in 1994, Shopping Centres and their Futures (HC 359, 1993-4), which concluded that the then Government Planning Guidance Note 6 (PPG 6) should be revised and that the planning guidance on transport (which had been published in PPG 13 in 1994) should be clarified. The most significant proposal of the Committee was the introduction of the sequential test for considering the applications of new developments. These proposals were accepted by the Government Response (Cm 2767, February 1995) and a revised PPG 6 was published in June 1996 (Town Centres and Retail Developments). In its next report in 1996-7 (Shopping Centres, HC 210) the Environment Committee called for clarification of the guidance because PPG 6 was failing to give town centres the protection they needed. Back

16 HC Deb, 5 December 1997, cc. 401-2. Back