Can a New Government Help Britain Get Its Cool Back?

LONDON — With all the election turmoil on the European continent, and the steady rise of right-wing sentiment, Britain’s election on Thursday is looking downright dull.

Labour is surging ahead in the polls, with its moderate leader, Sir Keir Starmer, ready to move his wife Victoria and two kids into No. 10 Downing Street on Friday, barring any last-minute upsets.

After 14 years of Conservative rule, Brexit, COVID-19, post-pandemic crises, and a string of political scandals, the country knows it’s time for a change of leadership, but nothing radical is likely to happen.

Taxes will continue to rise to pay for the generous furlough program during the pandemic, and to restore the country’s crumbling infrastructure, in particular the National Health Service. At the same time brands, trade organizations, entrepreneurs and creatives are hoping that a growth-minded Labour government might give them the boost they need to build their businesses, profiles, and relationships internationally.

They have reason to dream.

Cozying Up to Business

In its strategic shift toward the political middle ground, Labour has been cozying up to business and pitching itself as a party of growth and economic stability. In response, business leaders have been hedging their bets, talking to Labour and the Conservatives alike in the hope of winning support from whomever walks into Downing Street this coming Friday. 

Although some radical elements remain, Labour isn’t the old-fashioned lefty organization it once was. Starmer has made sure of that, as has his future chancellor of the exchequer, Rachel Reeves, a former economist for the Bank of England who has taken pains to get Britain’s banking and finance community on side.

The work has paid off and the party has won support from former Conservative donors including mobile phone magnate John Caudwell, and the billionaire owner of fashion brand Belstaff, Sir Jim Ratcliffe. Labour has even met with principals of Shein, the Singapore-based fast-fashion giant that is said to be looking to list on the London Stock Exchange this summer.

“For about two years the Labour Party has made very strong overtures to business and we’ve engaged with the potential new government,” said Helen Brocklebank, chief executive officer of Walpole, which represents British luxury businesses across a variety of industries.

She said there’s still a lot of work to do.

“From my point of view, I need them to understand that British luxury is the great economic hero of this country,” said Brocklebank, adding that over the past five years, one in 10 new jobs created has been in the luxury sector, which includes spirits, automotive, textiles and accessories.

She said the sector is ready and waiting to help drive growth and is a great example of the soft power that Britain can exercise on the world stage.

“We want the incoming government to have a laser-like focus on creating the conditions for growth,” she said, adding that Walpole’s top asks include “better trade links with Europe; smart policies that keep the U.K. out of trade disputes with the U.S. and with China, and backing the country’s highly skilled luxury workforce.”

Brocklebank and other high-end retailers, brand owners and creatives have a whole host of asks of the new government. Chief among them is the restoration of the tax-free shopping program and more support for consumer businesses and the creative industries.

They want better trade deals and lower taxes so they can help feed the economy, which has been showing some signs of growth after a tough few years.

Some Signs of Growth

In the three months to March 31, Britain’s GDP grew by 0.6 percent, according to the U.K. Office for National Statistics. It was the strongest growth since the fourth quarter of 2021 when GDP rose by 1.5 percent, but still lags far behind that of the U.S., and puts it near the bottom of other leading European economies, trailed only by anemic Germany.

Still, as the economy begins to show signs of life, industry organizations are calling for more support in skills, manufacturing, sustainability and innovation.

Other industry figures, meanwhile, told WWD they’d like to see a loosening of tax regulations on rich foreigners who are living part-time in the U.K.

The current Conservative government has eliminated the favorable “non-dom” tax, and instead wants to start taxing non-domiciled residents on their international income (rather than just U.K. earnings). It has led to a flight of wealth from the country, particularly of wealthy Russian oligarchs who helped fuel the U.K. economy through the early 2000s but who were forced to flee after the war in Ukraine began.

“Rich foreigners have been leaving for greener pastures and European countries with better tax breaks,” said one non-dom. “London used to be an international tax haven, and foreigners loved being here because of the rule of law, and the ease of doing business. All of that was feeding restaurants, hotels and businesses — but not anymore,” the person added.

The new non-dom policy isn’t the only tax that’s damaging business. Conservative Prime Minister Rishi Sunak’s repeal of tax-free shopping for non-U.K. citizens has dented luxury businesses up and down the country.  

‘Bring Back VAT Refunds‘

Although rich tourists are still visiting Britain, they’re choosing to do their luxury shopping in Paris or Milan where they can take get a tax break. High-end companies ranging from Burberry to the Savile Row tailors to Harrods and Selfridges have had enough.

In May, Selfridges set out plans to cut 2 percent of its headcount, or around 70 roles, and cited the repeal of tax-free shopping in January 2021 as a reason. According to a memo seen by WWD, the store said the absence of tax-free shopping in the U.K. had “significantly impacted international sales.”

In the past, high-end British stores had become magnets for wealthy, international customers who were able to claim back VAT, or value added tax, on their purchases. At one point, Selfridges even had a special suite where it would process tax-free shopping paperwork.

According to a recent study by Oxford Economics, the restoration of tax-free shopping would create 17,000 new jobs across the U.K., potentially add 4.1 billion pounds to GDP, and contribute 350 million pounds annually in tax revenues to the Treasury.

Last year Burberry chairman Gerry Murphy summed up the feelings of businesses when he told Sunak the plan was a “spectacular own goal” that had made Britain the “least attractive” shopping destination in Europe.

Despite three years of protest from British business leaders, government has been loath to reinstate the tax break, preferring instead to pocket the hundreds of millions of pounds in funds it receives from tourists’ purchases each year.  

Dee Corsi, CEO at New West End Company, which represents hundreds of businesses in the key shopping zones around Regent and Oxford Streets, said she hopes the incoming government will rethink the tax break for a number of reasons.

She and others say that 450 million continental European shoppers would be able to take advantage of the plan now that Britain is no longer part of the European Union.

“We’re losing so many international shoppers because of this tax, especially since it’s so easy to get the value added tax back in other European countries,” she said, adding that while American tourists are flooding into the country, “they’re not spending like they did before” and neither are the Chinese, who’ve begun trickling back.

She and others are counting on London’s Labour Mayor Sadiq Khan to push for change if the party wins Thursday’s election. “He is an absolute supporter of tax-free shopping,” as is local Westminster council, she said.

Brocklebank of Walpole said that reinstating the plan would bring back high-value tourism, arguing that for every one pound spent in high-end accommodation, a further 8 pounds are spent in the local economy, such as eating out, shopping and entertainment.

She also argued that in a country that needs growth, “the luxury is sector can really do a lot of the heavy lifting. It is growing at 11 percent, it employs nearly half a million people, and, with the right support, we think it can grow to 125 billion pounds by 2028,” she said.

The British Fashion Council, meanwhile, is plumping for a business taxation strategy that incentivizes growth and employment in brick-and-mortar retail, drives activity on the high street, and deepens business engagement with local communities. 

The organization, which puts on the London Fashion Week shows, also wants to see greater investment in the international buyers and press program; financial support for designers to access international market weeks and trade shows, and “more targeted trade missions and a strategic approach to reducing trade barriers with the European market post-Brexit.” 

UKFT, the U.K. Fashion and Textile Association, said it needs “significant investment in export grants.” It said that previously, when the grants existed, there was a return of 30 pounds for every one pound spent by the government.

It also wants the U.K. to join the Pan-Euro-Mediterranean (PEM) Convention on preferential rules of origin, giving the U.K. access to the same advantages as many of its closest competitors.

Creatives are also expecting support from the new government.

Last month, when the choreographer and director Wayne McGregor was given a knighthood in King Charles’ birthday honors, he immediately made an appeal for support of the arts.

“Building a career in the arts, creative thinkers make a vital and significant contribution to public life and to the nation’s economy while experimenting, risk-taking and challenging convention. Every young person given access to culture and creative expression has the opportunity to fly,” he said.

Nicholas Kirkwood, the footwear designer and entrepreneur who is launching his second business later this year, would agree. “The U.K. punches above its weight in film, fashion, music, and the arts. They are among the country’s biggest exports, but over the years subsidies have been cut over and over again, and they need more support,” he said.