Supermarkets, levies and the social franchise

(open clipart)

(open clipart)

We have referred in recent posts to the idea of the social franchise.  This framework for local policy has been advocated and developed by colleagues at the CRESC research unit (Manchester and Open Universities).  The idea is simple: by operating in a local area, businesses have an obligation that goes beyond mere market considerations.  They are in effect operating a franchise from the local population and its elected (local) government – they get to make a profit and we provide labour, a market, and favourable conditions such as planning permission and often hidden subsidies (like the UK’s low and frequently avoided rate of corporation tax).  What do we, the community get back in return?

The social franchise particularly applies to those large businesses that are place-based.  They are part of what CRESC call the Foundational Economy: that mundane but large and relatively resilient part of the economy that isn’t going to go away, that keeps on going despite economic storms – utilities, retail banking, health and social services, food processing, and much distribution and retail.  Quite a world away from the glamorous hi-tech, financial, media industries beloved of the orthodox city leaders and the priesthood of advisors – although let’s remember that the boundaries of the Foundational Economy are not necessarily fixed or total – it may be a matter of degree.

How do we get big firms to deliver on the social franchise?

Enfield council has shown the way with its work with the utilities and supermarkets.  They called them in for a discussion. Not all played ball but some did, including British Gas which agreed to employ more staff locally.  Contracting with local small businesses was also under discussion.

There are other ways too.  Derby council, together with 18 other authorities has just approached the ‘government in London’ proposing a levy on big supermarkets under the Sustainable Communities Act 2007.

Specifically the proposal is for government to give local authorities the power to introduce a levy of 8.5% of the rateable value on large retail outlets in their area with a rateable annual value not less that £500,000 and for the revenue to be retained by local authorities in order to be used to help improve their local communities. This could generate hundreds of millions of pounds for local authorities across the country to spend on making their areas more sustainable.

It already exists in Scotland (9.3% levy) and Northern Ireland (8.5%), so we know its possible.

 Evidence shows that the revenue from the Northern Ireland levy has helped over 8,000 small businesses in Northern Ireland and has had no negative impact on jobs. The levy is being used to help public services in Scotland.  (source as above)

 63 other local authorities have also backed the call.  I can’t find the list of which these are – maybe some Greater Manchester authorities have also backed the Derby 19.   Is Manchester one?……

…….NO.  Astonishingly, the council has said it will not back the proposal.  Jeff Smith, executive member for housing and regeneration, is quoted, by the Evening News as saying:

“We work very hard to bring in big supermarkets because they provide much-needed regeneration.

“we want to encourage them and not run the risk of putting them off.”

He said they brought both regeneration and jobs to more deprived areas – and created large retail developments which meant investment in the surrounding areas.

But as Councillor Ranjit Banwait, Leader of Derby City Council says:

Research has shown that 95% of all the money spent in any large supermarket leaves the local economy for good, compared to just 50% from local independent retailers; this levy is a modest attempt to ensure more of that money re-circulates within and continues to contribute to local jobs and local trade.

The evidence for this claim can be found in work from New Economics Foundation.  The idea that supermarkets can help local regeneration seems to come from a report from Demos that was roundly criticised on the basis of the evidence from here and in North America, when it appeared.

Supermarkets siphon money away from local communities and towards shareholders and distant corporations. A study by NEF (the New Economics Foundation) found that £1 spent in a local shop selling local produce puts twice as much money back into the local community as £1 spent in a supermarket. An analysis of procurement spending conducted by Northumberland County Council with NEF has shown that£1 spent with local suppliers is worth £1.76 to the local economy, while £1 spent with suppliers out of the area is worth 36 pence. A Friends of the Earth study of local food schemes found that on average just over half of business turnover was returned to the local economy, compared to as little as 5 per cent for supermarkets.

I had a brief conversation with Jeff about this on twitter:


So we’ll see.  Maybe Manchester is, as Jeff suggests in the MEN article, ‘different’.  But if so it really needs to demonstrate the economic benefits, taking into account the well documented outflow (a.k.a “leaky bucket”, “leaching effect”) of the big supermarkets on the local economy.  Exam question to our council:  “How do you secure the social franchise for Mancunians?”.

For now at least we are stuck with these giants.  We need to see how we can tame them, capturing some of their money flows to use them in for the public good.

And while we are on it – how about we all refuse to use those automatic tills that are springing up everywhere.  That could be an agenda item for Manchester’s first calling to account meeting with the supermarket chains.  OK, supermarket jobs are not the best ones in the world, but they do (did?) make a contribution to many families’ income.  If the council’s priority is as Sir Richard has, I think said, “Jobs, jobs, and jobs”, what are they doing with their friends Aldi, Asda, Tesco and the like to protect them?

updated, 31 July, 2014

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5 Responses to Supermarkets, levies and the social franchise

  1. There was a report from Salford University, (note, the full 57 page is no longer available to the public) on the regeneration of Hulme in the 1990s, which highlighted the negative impact of the building of the new ASDA. It prevented any small businesses developing, let alone to flourish. Another report by Vivacity 2020 (2004) made the following observations on page 40:
    “Since 1996 there have been a number of changes which could potentially have affected the view of residents about ‘community spirit’. The demolition of the much-loved yet shabby shopping precinct, the coming of the new ASDA and the desultory level of activity in the new market hall suggest that these changes were taken without the earlier level of public participation or approval. The arrival of substantial numbers of private housing residents, mostly in employment and seen to be ‘advertising their affluence’ cannot have helped. Given the profile of the new residents it might be anticipated that they would be less concerned with their local community.”
    Even the new market was an abject failure, so how someone can state, supermarkets are used as anchors for developments and of course, the throw-away ‘and jobs’, are beyond me? Supermarkets take money out of a local community and provide low-waged employment. As the article points out, replaced by automatic tills. We do have some social enterprises in Manchester, the Unicorn and the Eighth Day, for example, but there are others.

  2. benjaminirvinepress says:

    It is worth adding, as cresc point out, that supermarkets in particular enjoy large privileges from the ‘social franchise’ in this sector as planning law effectively confers local monopolies to these large retailers, by limiting other retail developments in the area. There is a strong argument for why they should be required to demonstrate greater social responsibility when benefiting from a monopoly on a sheltered and guaranteed income stream.

    Studies in the US have also shown that per foot of retail space locally owned independent businesses appear to generate greater turnover, with more of that staying local and where there are higher densities of locally owned businesses there is higher per capita income growth. (p.23

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