I'm size 1.5 so I know how it feels. I don't know why they don't make heels in smaller sizes because, generally, if you have small feet you'll be shorter (and being shorter, wouldn't you want/need heels more than an average/tall person?).
I shop at petitfeet.co.uk and deichmann.com (children's section, of course.) New Look, as previously mentioned by others, have an okay teens shoe section but sometimes they can look a bit... tacky? Tammy in BHS again have some nice special occasion footwear, like simple black boots etc.
Regarding flat shoes, I've recently bought some shoes from Cath Kidston's children section (size 2, I think they come up small?) with a small flower print. They're quite cute and come in different colours and patterns. Plus, they aren't too expensive.
Vans obviously sell children's sized vans as well and they come up slightly big (i'm size 1 in vans).
There's a shoe store in my town that sells VERY cheap shoes that most people pass by because it's too 'not cool' to shop in there. I find that cheaper shoes come up smaller so maybe a size 3 in a cheap store/make would fit.
Heel grips and insoles are my best friends. I've got really small and thin ankles and have to wear a heel grip in almost anything. They help shoes that have a fingernail-sized space at the heel fit pretty well. Half-insoles also help if part of the shoe is tight or fits and part of the shoe is loose.
TK Maxx is also good for smaller sized shoes. I've picked up some great heels from there, it just takes a while to look for and there aren't many to choose from. If there is a TK Maxx in town, I suggest popping in every so often and having a look through the shoes. At my local, there's almost always a size 2 heel floating about somewhere!
I get really annoyed that sometimes I can't find individual-looking shoes in my size so I customised a few cheap heels from petitfeet.co.uk by covering them in glitter, or covering them in fabric or glueing belts and buttons onto them.
I hope I helped, I really know how it feels to be disappointed every time you see a nice pair of shoes that start at a size 3.