London councils demand powers to close down rogue shops

London's local authorities are urging ministers to grant them enhanced powers to shut down high street shops that repeatedly flout regulations. The call follows analysis from the Centre for British Progress, which identifies a growing number of businesses operating as fronts for illicit activities, including money laundering and the sale of illegal goods. The report suggests a 'two strikes and out' policy for persistent offenders.

Currently, councils can pursue closure orders based on the likelihood of crime or disorder at a premises. However, the Centre for British Progress report, seen by the Local Democracy Reporting Service, notes that local authorities are often hesitant to invest in lengthy legal processes, especially when successful closure orders only result in a temporary shutdown of three to six months. This has meant the legal tool has not been widely employed to tackle problematic shops.

The problem of 'phoenixing'

The issue of 'shady stores' is linked to 'phoenixing', a practice where individuals repeatedly establish and then dissolve companies to avoid paying creditors. This behaviour is estimated to have cost the Exchequer £836 million in the 2022-23 financial year. The report highlights a specific instance in Westminster where seven different companies occupied a single shop unit between 2017 and 2024, failing to pay business rates and costing the local council over £3 million.

The Centre for British Progress advocates for an Irish-style system where directors of insolvent companies must demonstrate good conduct or provide a financial buffer before being allowed to serve as directors again within five years. Currently, director disqualification rates in the UK are approximately three times lower than in Ireland.

Calls for clearer legal routes

The report argues that empowering councils with a more direct and swifter method for closing down offending businesses would also aid national law enforcement. It suggests a 'divide and conquer' model, where local authorities address smaller-scale offenders, allowing national bodies like the National Crime Agency to concentrate on more complex criminal operations. The analysis points to a case in North London where a business continued to operate despite multiple breaches, including illegal waste disposal and trading without registered directors, and where residents reported anti-social behaviour.

Joe Powell, Labour MP for Kensington and Bayswater, stated that high streets should be community hubs, not centres of crime. He welcomed government plans to tackle phoenixing and shut down businesses involved in illegal activities, describing them as a vital step towards restoring public confidence in local shopping areas.

In August, the Prime Minister announced measures to double the maximum length of closure orders from six to 12 months. This change aims to provide police and local authorities with more time to investigate premises linked to organised crime and to prevent rogue businesses from reopening before investigations conclude.