While the UK government claimed its latest budget delivers “lower taxes and more investment”, a number of apparel retailers and representative bodies say the latest financial statement will not help the fashion retail sector.
The British Retail Consortium (BRC) said the budget “will do nothing” for retailers and their customers in the UK.
BRC’s chief executive Helen Dickinson commented: “The cost-of-living crisis has taken a toll on businesses and households. Consumer confidence remains low and retail sales volumes in 2023 were the lowest in four years."
While the BRC said the cut to National Insurance might “go someway” towards supporting households, it said the "spectre of higher inflation" could return to the UK, limiting the benefits of this policy for retailers.
Scott Parsons, chief operating officer at Unibail-Rodamco-Westfield, which owns several UK shopping centres, called the budget “an utter disappointment," adding: "These are clear missed opportunities especially in this all-important election year."
No action on business rates for fashion retail
The BRC criticised the government’s “inaction” on business rates, which it says will cost the country’s retail industry £470m ($599.38m) extra each year, as the imminent 6.7% rise from 1 April is expected to add hundreds of millions of pounds to retailers’ bills.
Dickinson said the policy will have "consequences for jobs and local communities everywhere – from the smallest villages to the biggest cities".
New Look’s CEO Helen Connolly claimed the UK’s retail industry is unanimous in the view that the current business rates system “is not fit for purpose" and needs urgent reform.
Conolly said: “Our sector is the backbone of communities up and down the country, contributing significantly to the UK economy. It would be a misstep by the government to not consider making our circumstances for operating easier, otherwise they risk losing out on the long-term growth of retail.”
Unibail-Rodamco-Westfield's Parsons echoed calls for reforms on business rates. He pointed out the existing system puts UK high streets "at a massive disadvantage" compared to those in other European cities, ,adding that UK retailers face a financial burden of nearly ten times that of brands on the continent.
"Permanently lowering rates is the most meaningful way to support the sustainable, long-term growth of the retail industry and show the world once and for all that the UK is open for investment," Parsons said.
The BRC’s Dickinson added: “This rise in rates does not exist in a vacuum – retailers are also contending with cost pressures throughout the supply chain, in the context of the largest increase to the National Living Wage on record.”
VAT-free shopping still scrapped
The UK’s VAT Retail Export Scheme, which was scrapped in 2021, looks unlikely to return after the Treasury’s Red Book, which accompanied the Budget, outlined its decision not to revise the policy.
The Red Book stated that, according to Treasury research, restoring the policy is “unlikely to affect significantly the productive capacity of the economy”.
However, Helen Brocklebank, CEO at Walpole, a representative for the UK luxury sector, said the move was “a massive missed opportunity” for the sector.
Brocklebank said: “By reintroducing VAT-free shopping for international visitors, policymakers could cement Britain’s position as a world-renowned shopping destination, encourage more inward investment and support hundreds of thousands of jobs across regional supply chains.
“Instead, retailers may now struggle to keep pace with continental competitors; British retailers, including luxury brands, are estimated to already be losing £1.5bn per year as international visits opt to spend in France, Italy and Spain, where tax-free shopping schemes remain in place.”
The BRC’s Dickinson also noted that the UK is currently the only European country that does not offer a tax-free shopping scheme.
“Independent research from Centre for Economics and Business Research (CEBR) shows that the UK economy is losing £11bn a year because of the loss of tourism resulting from, what is effectively, a tourist tax. Tax-free shopping not only convinces tourists to buy more, but it also attracts shopping tourism, supporting businesses and jobs in the UK," Dickinson added.
GlobalData associate apparel analyst Alice Price told Just Style: "At a time when domestic consumers are curbing spend on discretionary categories amid the ongoing cost-of-living crisis, UK retailers are unable to capture spend from international visitors, who are instead choosing to spend in other European shopping hubs such as Paris, Milan, and Berlin, where tax-free shopping remains in place."
Price added: "This issue is not exclusive to luxury players, with consumers noticing a marked difference in the price of goods from high-street players in the UK compared to in Europe. This decision not to reintroduce the tax rebate will ultimately mean no relief on profits, which will potentially lead to more retailers falling into administration or having to cut jobs.”
The news comes shortly after retail sales slumped in the UK in February 2024 as consumers took a noticeable swerve away from clothing and into homeware, dining, health and beauty.
