Briefing: The Budget and the Fashion Industry
Rishi Sunak’s second budget seeks to lay the pathway for the UK economy’s exit from the stupor that the twin pressures the pandemic and Brexit have posed. Attempting to strike at the very fine line between acknowledging the worst economic crisis in 300 years and optimism, the Budget’s sequential delineation of provisions sought to explicate the proposed actions that account for this optimism and how they will achieve the Chancellor’s lofty aims of recovery. Although most provisions had been alluded to prior to the budget’s parliamentary announcement, we now have more detail on the measures which seek to induce growth in the UK and which will directly and indirectly affect the Fashion Industry. In this briefing we highlight the main provisions relevant to the UK’s Fashion Industry and the businesses and workers that constitute it.
Given the rate of expenditure outlined in this budget, and the volume of borrowing that has occurred in the last financial year, it is perhaps unsurprising that the Government has committed to increasing the rate of corporation tax in the UK to 25% by 2023. Whilst this is a significant rise, there are provisions in place to protect smaller businesses from the tax hikes. Firms with annual profits under £50,000 are to pay the current rate of 19%, which the Government figures suggest will mean that around 70% of companies, or 1.4 million businesses, will be unaffected by the change. For firms with profits above £50,000 there will be a taper, meaning only businesses with profits of £250,000 and over will pay the new 25% rate. Further assistance is also provided as the Chancellor announced that companies will be allowed to carry back losses for three years, allowing them to boost their cash flow and claim additional tax refunds.
In light of the budget, BEIS have highlighted and clarified provisions on the VAT deferral scheme. If businesses deferred VAT payments between 20th March and 30th June 2020, and still have payments to make, they should pay by 31st March 2021 if they can. If businesses cannot afford to pay by 31st March this year, they can now use the online VAT deferral new payment scheme to spread the payment. The scheme will let businesses pay their deferred VAT in equal monthly instalments, interest free. Businesses can join the scheme online, without the need to call HMRC, and more information on the scheme can be found here. The online service will close on 21st June 2021. It is worth noting that if businesses have a Time to Pay arrangement already in place for their deferred VAT, they cannot use the online scheme and need to contact HMRC for amendments.
Several more key announcements for businesses:
Grants totalling £5bn have been announced for struggling sectors and to help businesses get going after lockdown.
Small businesses have been offered a 50% discount up to £5,000 on productivity-enhancing software
A new loan scheme for this year has been announced to replace the bounce back loan and the coronavirus business interruption loan scheme. This new loan scheme will run until the end of the year and the loans offered can be between £25,000 and £10m.
The business rates holiday has been extended to the end of June, at the same rate of 100%.
There was no mention of the rumoured online sales tax.
Fashion Retail:
Important news for the high street was the announcement of the continuation of the ‘furlough’ scheme until the end of September. Employees will continue to receive 80% of their wages until the end of the scheme, but there is a phased plan to increase the contributions of businesses from July onwards. The Government will continue to pay 80% of employees’ usual wages for the hours not worked, up to a cap of £2,500 per month, up to the end of June 2021. For periods in July, grants will cover 70% of employees’ usual wages for the hours not worked, up to a cap of £2,187.50. In August and September, this will then be reduced to 60% of employees’ wages.
Mr Sunak also announced that the Treasury will make available more than £1bn for 45 new Towns Funds deals. The fund is designed to help ‘level up’ regional towns, facilitating a growth strategy that can help mitigate the damage done by the lockdowns and forge ahead in the post-pandemic world. Whilst beneficial for retailers, that 47 of the 56 constituencies set to benefit from the scheme voted Conservative in the last election has drawn criticism.
Helen Dickinson, CEO of the British Retail Consortium said:
“The chancellor has listened to many of our concerns and we welcome the extension of key businesses funding schemes. This announcement provides some targeted support to struggling businesses across the country. Action to support the retail industry will be vital to reviving the economy - including business rates relief, restart grants and loans, and an extension to the furlough scheme.”
Industry:
Although the £408 million injection into the Arts and Culture is welcomed, it is yet again disappointing to see no recognition of the Fashion Industry. With the Government still unwilling to meet with Fashion Roundtable, amend the Shortage Occupation List or provide support to the industry in funding packages, it is of paramount importance that the Government recognise the importance of our industry, which could play a vital part in the UK’s future green economy if properly addressed. A steer is required on the introduction of legislative and policy amendments to support businesses, workers and creatives.
With the fishing industry receiving £23 million in January of this year, and the film industry, who’s gross value added is £6bn, now receiving explicit support in the Chancellor’s budget, where is the support for the £35bn Fashion Industry?
Absence of Green Recovery:
Although the Chancellor has made some provisions related to the climate, there was a notable absence of a concerted effort to bolster a “green recovery” which has entered the Government’s rhetoric in the past months. The three key provisions were:
Changing the remit of the Bank of England’s interest rate-setting monetary policy committee to include a duty to support the Government’s net zero carbon ambition.
A commitment to support Green projects through a green recovery bond
A new national infrastructure bank is set to open in Leeds, with a £12bn capitalisation from the Government.
These are modest provisions and one would have hoped that given the opportunity to rebuild the UK’s economy that a much greater emphasis on sustainability would have been offered. The budget's lack of focus on the environment coincides with the Business Secretary Kwasi Kwarteng’s decision to dissolve the Industrial Strategy Council, leaving commentators questioning the direction of the Government’s strategy to business, sustainability and growth.
Tamara Cincik, CEO Fashion Roundtable said:
“With a 5% unemployment forecast until 2023 we are looking at a slow recovery from the pandemic, translating as many job losses for retail. This will particularly impact women as 58% of the employees are female. Had the fashion industry received the same level as support as the film industry and sport, we could roll out some fantastic initiatives across the UK to level up British fashion talent and manufacturing, supporting a sustainable green creative business economy drive. Even within the same government departments, as all sit within DCMS, we are not seeing the same levels of support, which in turn will affect growth, jobs and our future business opportunities.”
Further Reading:
Read the Government’s summation here