"Shangri-La" forms the centerpiece of Arthur (Or the Decline and Fall of the British Empire). The song opens quietly with an acoustic guitar soon to be joined by Davies singing. The lyrics at this point are condescending, mocking the illusions of the protagonist Arthur that his modest home earned through hard work is a paradise, just because it contains modern conveniences such as indoor plumbing and a rocking chair. Davies provides one note of empathy for Arthur's empty life with a line stating that he accepts this because "he's conditioned that way." However, the bridge rocks harder as the lyrics express anger at the superficial suburban lifestyle that Arthur lives and their fear of confronting their "false Eden."
Music critic Johnny Rogan calls the song "one of Davies' best from the period," noting that "his ambivalence to the subject is evident throughout as he takes an alternately affectionate and sardonic look at cosy middle class aspiration."Allmusic critic Stewart Mason agrees that "Shangri-La" is "one of Ray Davies' finest songs ever." George Starostin, on his music review website "Only Solitaire", praises the song, saying that it "ranks as one of the top three or four Kinks' songs ever". But like the Kinks previous single, "Drivin'," "Shangri-La" failed to chart in the UK or US. It did reach #27 in the Netherlands.