What’s on fashion retail’s Spring Budget shopping list?

  • March 19, 2023

Since the Autumn Statement was delivered on the 17 November 2022, the fashion retail industry has been hit by store closures and job losses. The business rates revaluation that comes into effect in April will ease some of the burden, but retailers say there is still more to do. Reinstating VAT refunds for tourists and changes to the apprenticeship levy are also top of the wish list.

In January, H&M announced four store closures in Hartlepool, Maidenhead, Newport on the Isle of Wight and Burton in Staffordshire.

TK Maxx pulled out of its Meadowbank shopping park site in Edinburgh, and New Look announced the closure of its stores in Fort Shopping Park and the Bullring and Grand Central shopping centre, both in Birmingham, alongside branches in Trowbridge, Coventry, east London’s Walthamstow, Northampton and Kirkcaldy in Fife.

At the beginning of February, Drapers revealed that New Look would place up to 500 jobs into consultation at its lead distribution centre in Lymedale, Newcastle-under-Lyme in Staffordshire, as it shut down all night shifts at the location.

In addition, Scottish value retailer M&Co has confirmed that it will shut all 170 of its stores by Easter with the loss of 1,910 jobs.

The latest figures from the Centre for Retail Research show that a total of 14,874 retail jobs have been cut by UK retailers since the start of 2023.

Mulberry is leaving its New Bond Street store citing the removal of the VAT refund scheme for tourists

And last month, British leather goods brand Mulberry added to the general industry gloom by exiting London’s luxury fashion enclave Bond Street. The business cited a prolonged financial hit from the axing of the 20% VAT Retail Export Scheme for tourists in January 2021.

With all the downsizing and departures across the fashion retail sector, the Spring Budget needs to create a substantial financial float to keep cash flowing in across the counter, business leaders tell Drapers.

Helen Dickinson, CEO of the British Retail Consortium, says: “We hope the chancellor will build on the positive business rates announcements from the Autumn Statement, to provide a roadmap to longer-term reform.

“We’d like to see the VAT Retail Export Scheme reinstated to boost the UK’s competitiveness driving footfall and spend. The UK is currently one of the only European countries without such a scheme.”

She also adds that the government must “urgently fix” the apprenticeship levy to allow retailers to invest “more effectively in training”. The apprenticeship levy applies to larger companies and is charged at 0.5% of an employer’s annual pay bill – if it exceeds £3m – to contribute towards the costs of apprenticeship training and assessment.

Julian Dunkerton, CEO of Superdry, says: “There are several things we need from this government. The business rates system certainly needs an overhaul. The reduction [from the revaluation of properties] is of course welcome, but if the rates are still prohibiting retailers from opening stores, it’s the system that needs to change.

“The government also needs to now work towards a free trade deal with Europe. That’s how we can bring up the value of the pound against the dollar and other currencies, which will help ease inflation.”

Jacqui Baker, partner and head of retail at business tax consultancy RSM UK, adds: “Business rates are a massive burn in retailers’ pockets and, while some reductions are due to come into effect from April, not everyone will necessarily benefit. A real solution is needed to make [the system] fit for purpose.

Superdry CEO Julian Dunkerton believes the retail property taxation should be overhauled to encourage investment

“Continued calls for the return of tax-free shopping is another big plea from retailers. The effects of this change are severe – particularly in the London market – and without tourists coming through the doors, some retailers will simply no longer be viable.”

Andrew Goodacre, CEO of BIRA (the British Independent Retailers Association), agrees that VAT free shopping should be reinstated: “As the number of visitors starts to increase again we should be maximising the opportunity rather than dissuading visitors from spending money in the UK economy.”

Goodacre adds that additional support with business rates is needed for independents, as smaller businesses may face a rise in their rateable values of 10%: “We welcome the higher level of retail discount that will come into force in April, but we also want to see the multiplier permanently reduced for the small retailers to further offset the increase in rateable values.”

A mixture of price increases in raw materials and shipping costs combined with a general spending malaise from consumers needs targeted government action, believes Chris Gove, founder and creative director of menswear brand Percival: “We are seeing inflation across the board, from the incremental garment costs to shipping costs, which end up adding so much more to the retail price of a product. Anything the government can do to bring down inflation would be really helpful.”

LK Bennett CEO Darren Topp believes the government’s top priority must be to stabilise the economy

Darren Topp, CEO at womenswear retailer LK Bennett, says the Spring Budget needs to attempt to resuscitate the fashion sector: “The government’s job is to get the economy on a sure footing and if it does that, that will benefit all retailers in the medium-to-long term.

“There are a lot of things I’d like the government to do, such as support on energy bills, rates relief and the apprenticeship levy done differently, but getting stability in the British economy is the number-one priority, as well as getting inflation down.

“There are one or two things government could do: the first is the reintroduction of tax-free shopping because clearly that’s having an impact on tourists and sales in London.

Fashion retail’s pain points

  • Energy Bill Relief Scheme, which caps electricity and gas price increases, ends on 31 March
  • Business rates revaluation comes into effect on 1 April
  • Apprenticeship levy of 0.5% of an employer’s pay bill if it exceeds £3m
  • VAT Retail Export Scheme for tourists was abolished on 1 January 2021
  • Inflation: Consumer Prices Index rose by 10.1% in the 12 months to January 2023
  • Brexit bureaucracy and costs: Boris Johnson’s December 2020 trade deal with the European Union has led to new tariffs and customs regulations

“The rate revaluation has certainly helped and has flattened the playing field a little [between online and physical retailers], but [the rating system] is still a barrier to investment. There are places I’d like to open a shop where there are reasonable rents, but the rates are so prohibitive.”

Bruce Findlay, managing director of retail at property company Landsec, says the business rates regime is “fundamentally outdated” and there is a need for a “simpler, more transparent and more equitable” system that “shapes economically successful, socially thriving, places”.

One managing director of a menswear brand says that in addition to spiralling business rates, energy costs could cause further store closures after the government’s Energy Bill Relief Scheme for non-domestic users ends on 31 March.

“Our electricity 18 months ago was 12p a unit and it’s now 75p a unit in a few of the stores with locked-in contracts,” he says. “It has been capped at 45p with the government’s help [since October] but that will end at the end of March. If I have to start paying 75p a unit from April, my bills would go up five times [compared with 18 months ago] and it just won’t be sustainable in some stores.

“We are seeing fewer customers [compared with 2022] and it is going to be a tough year.”

Boris Johnson’s Brexit deal struck in December 2020 has led to additional cost and bureaucracy for the fashion retail industry

BIRA’s Goodacre adds: “The government should also commit to reviewing the energy support scheme again in October when costs normally increase.”

The managing director at one high-end footwear retailer, says the government will need to use the Spring Budget to quash “the general negative feeling” about the economy, whether related to inflation or business rates, as “people need to be able to feel positive about the economic outlook and have the confidence to spend”.

The “unnecessary bureaucracy Brexit has created for us in the fashion industry” is also something that “has to go”, he adds: “It’d be nice for the government to acknowledge that [Brexit] isn’t going well and start to do something about making trade freer.”

A British Chambers of Commerce survey in December 2022 into the effects of Boris Johnson’s December 2020 Trade and Co-operation Agreement with the European Union found that 80% of firms had seen the cost of importing increase in 2022 and 53% had seen their sales margins decrease. 

It is quite a shopping list for the chancellor. However, to keep the tills ringing, chancellor Jeremy Hunt will have to ring in the changes on 15 March.

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