News analysis: will the new UK government deliver for fashion and retail?

By

Sandra Halliday

Published
Jul 5, 2024

It’s official, the UK has its first Labour government in 14 years with a landslide win for the Labour Party. And with plenty of business leaders having come out in support of the party, it seems business might be happy.

How happy it stays depends on what happens in the next few months, on whether the government sticks to its plans and whether it addresses key issues on which it hasn’t currently commented.

So what are the challenges fashion and retail face and that these sectors are really looking for the government to address? 

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There’s Brexit that has caused difficulties in trading with the EU and reduced the pool of skilled staff available to companies. 

Then there’s the end of the VAT Retail Export Scheme (RES) with the near-total shutdown of VAT-free shopping for tourists that has damaged luxury retail. And to add insult to injury, not only are high-spending tourists visiting Paris and Milan instead of London, Britons who might have shopped at the country’s luxury stores are also shopping in Europe as they can now claim back their VAT.

For retail specifically, the ongoing problem of business rates hasn't been solved and is a constant headache for businesses of all sizes.

Any more issues? Add in planning issues; retail crime; the lack of government support for creatives compared to some European countries; uncertainty over future sustainability legislation or planning reform…Those are just a few of the problems.

But the two biggest wishlist items among those Fashionnetwork.com spoke to are tax-free shopping and business rates and, so far, Labour has only mentioned one of them.

What Labour has said

In its manifesto and during the campaign, Labour said it would be both pro business and pro worker, which some people might see as something of a juggling act. We know that it wants to reform business rates and create a more level playing field for physical retailers. But if that might mean penalising large online retailers, it needs to make sure that it doesn't discourage them from doing business in the UK and that omnichannel businesses are encouraged.

We’ve been told that it wants to ban certain zero hours contracts (but not all of them), and to introduce employment protection at an earlier stage of an individual’s time at a company, as well as taking more account of the cost-of-living in setting minimum wage levels. That's likely to please workers but perhaps less likely to get a thumbs up from business owners, large and small.

Other actions it has said it will take include supporting entrepreneurs, incentivising companies to invest, tackling the scourge of empty business properties on high streets, protecting freelancers from late payments, and investing in training. And it wants to make supply chains more secure, as well as saying that corporation tax won't increase from the current 25% rate. However, the final details remain to be fleshed out. 

On the sustainability front, Labour has rode back on some of its earlier ambitious commitments but it's still aiming to make Britain a “clean energy superpower” via a state-owned clean power company. It's also aiming to cut energy bills.

However, it's unclear what its approach to addressing the skills gap will be beyond training. Many businesses would like to see more staff with the right skills potentially coming in from abroad. But all parties during the campaign period were talking tough on immigration so there’s unlikely to be an extreme easing of the rules.

Tourist tax and business rates

As mentioned, the fashion sector and the retail industry have a number of things on their wishlists and they've not been slow at reiterating those on Friday as the new Prime Minister gets his feet under the table at number 10 Downing Street.

The British Fashion Council’s (BFC) wishlist is topped by restoring the VAT RES and reforming business rates to boost growth in the fashion retail sector — it emphasised how currently, physical and omnichannel fashion retailers “face significant competitive challenges against online-only retail” because of onerous business rates.

As for tax-free shopping, it said that while the Treasury “is unwilling to look beyond their own projections on the impact of reinstating the VAT RES scheme, the most recent independent research suggests reintroducing the scheme would deliver additional revenue of £2.3 billion and 2 million more tourists a year, rather than represent a loss to UK Plc”.

Scott Parsons, COO of Westfield in the UK, echoed the BFC. He said his first priority is “to do what no previous government has been able to achieve and reform business rates once and for all, and the second is to abolish tourist tax. [This] will not only help save our high streets but it will also unlock growth across the UK, allowing us to better compete on the global stage”. 

And Andrew Keith, CEO of Selfridges, added: “The reintroduction of a tax-free shopping scheme after a three year hiatus would have a massive impact on the country, boosting the economy, jobs, the retail and hospitality sector and cultural institutions up and down the country. The benefits would be far-reaching.”

So how likely are these insiders to be happy about what the new government does within, say, the next next year? Keir Starmer has talked about reforming business rates, but there’s understandable nervousness both over what the details might be and the lack of any comment on the tax-free shopping issue. 

Jacqui Baker, head of retail at consulting firm RSM UK, said: “While Labour have vowed to scrap the current business rates system, retailers are nervously awaiting the details on how the system will work in practice. As the biggest burden for the sector, retailers are banking on an effective overhaul that makes it fit for purpose once and for all.

“However, with no mention of tax-free shopping by Labour, hopes for a U-turn are quickly fading. Recent ONS figures show net tourism spending has fallen 9% in Q1 2024, highlighting that the removal of the regime is having a substantial impact. In what seems like an easy win to boost the UK economy, it’s disappointing this isn’t top of the agenda for the new government.”

And John Webber, Head of Business Rates at Colliers, added: “Given the size of the landslide victory, there should be no excuse for the Labour party to avoid addressing the business rates problem or to introduce significant reform, which will help protect the high street.

“After more than 30 years of mismanagement from successive governments, we now have a multiplier which… means a 50% tax on property occupation, a complicated relief system… and an appeal system that’s inefficient, lacking transparency and increasingly difficult for businesses to negotiate. The current system is just not fit for purpose.

“This is a once in a lifetime opportunity to… rebase the multiplier to something businesses can afford, review the relief system so that everyone that uses local services pays something, reform the appeal system and to regulate business rates advisers, so businesses are not at the mercy of rogue traders.”

And doing all that could help Labour when it comes to re-election. British Retail Consortium CEO Helen Dickinson stressed how getting the massive retail industry firing on all cylinders means that “through its scale and reach [it] can make a big contribution to Labour’s policy goals”.

She’s waiting to see if commitments to reforming business rates, as well as planning and the apprenticeship levy, and introducing a specific offence for assaulting a retail worker actually happen. But business rates are her big focus.

“Labour recognised that the business rates system is broken,” she said. “With retail paying 22% of the total rates bill while accounting for 5% of the economy, it is the number one thing in the way of increased retail investment which could unlock growth across the economy.”

More to focus on

Of course as mentioned earlier (and as Helen Dickinson also referred to), there’s more to sort out than just business rates and tax-free shopping, however important those two issue might be.

The BFC’s strategy document also said that it wants greater trade and export investment for UK fashion designers; support for Britain’s “world-leading fashion education sector”; the development of a new generation of businesses and skilled workers in the fashion sector; and the introduction of legislation to activate sustainable business practices to meet decarbonisation and net-zero targets.

BFC chief Caroline Rush stressed how the group believes the UK fashion industry is “underestimated and underfunded by government”, citing the theatre sector that’s tiny compared to fashion in terms of the value it generates but gets 83.5 times the investment the fashion sector receives from the UK government!

The BFC said that while London Fashion Week receives around £700k a year from public funds, Berlin Fashion Week receives around €4.5 million from the State of Berlin alone. And since the withdrawal of the UK Tradeshow Programme, there has been no direct Department for Business and Trade support for businesses to access international tradeshows either.

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Time to talk

Meanwhile,  the body that represents businesses in London’s West End, the New West End Company, has previously talked at length about tax-free shopping and business rates. But on Friday its CEO Dee Corsi was more interested in calling for the new government to adopt a collaborative approach and to speak to the industry. 

She said the outcome of the election “will bring much-needed certainty to businesses across the capital. Labour’s promise to deliver economic growth for Britain is reassuring for all who want to see our high streets thrive, and the new government’s commitment to tackling a troubling rise in retail crime, reforming the outdated planning system holding back investment, and revising the burdensome business rates system is encouraging. 

“Now, over the  next 100 days, we must see swift action to turn these pledges into credible policies, constructed in close dialogue with the business community. If the new government is truly committed to delivering growth for the UK, it is absolutely critical that businesses are invited to help shape the solutions to these thorny issues. 

“As the voice of over 600 businesses with a presence in the West End and nationally, we are ready and waiting to partner with Labour to inform policies which will deliver on our shared vision for growth and restore the UK’s competitive edge on a global stage.”

The idea of government working closely with retail was echoed by Westfield’s Scott Parsons who said the election result “is an exciting moment for the country and an opportunity to refresh the relationship between business and government and how they work together to deliver for communities.

“Labour’s commitment to working with business leaders is refreshing and I invite our new Prime Minister and his team to meet with me on behalf of the hundreds of British and global retail brands at Westfield London and Westfield Stratford City to help turn both asks into a reality.”

Elephant in the room?

Of course, there's no denying that labour will be hampered by a not particularly strong economy. But it will also be hampered by issues that it would perhaps rather not talk about.

Delivery specialist Parcelhero highlighted that when it stressed “logistics needs help from the new government” too. By that it means the burden on the logistics sector needs to be eased, “particularly reducing post-Brexit red tape”.

Head of Consumer Research David Jinks said that there’s “one Labour promise we wouldn’t be sad to see it break. Labour has pledged there will be no return to the single market or the customs union. Labour says it will work to improve the UK’s trade and investment relationship with the EU by tearing down unnecessary barriers to trade. However, without a significantly stronger trading arrangement with Europe, it’s hard to see how all the new Brexit red tape that is strangling Britain’s exporters to Europe can be eliminated.”

But while the new Prime Minister was once an enthusiastic supporter of a second referendum and a return to the EU, he's insisted that the Brexit decision will stand. 

Brexit remains a hugely sensitive issue in the UK and for any government seeking re-election within five years, it's something that's very unlikely to be revisited and therefore will remain a brake on business and the new government’s growth ambitions.