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Johnson or Hunt? The fashion industry's verdict

Analysis

Conservative Party members will be choosing the next prime minister in the next three weeks. Drapers finds out whether Jeremy Hunt or Boris Johnson will be better for the fashion industry.

With the race to become Conservative Party leader now entering its final weeks, frontrunner Boris Johnson and his rival, Jeremy Hunt, are taking part in a series of hustings to persuade party members they are best suited to the job.

By the end of July, party members will determine whether Johnson or Hunt takes over from Theresa May as party leader, and becomes Britain’s next prime minister.

When Drapers asked a range of businesses in the UK fashion industry which issues the next prime minister should prioritise, there was one clear winner: Brexit.

But business rates reform, tax incentives and government leadership in helping the high street and the industry thrive sustainably are also pressing issues the next prime minister should address. How do Johnson and Hunt’s policies and pledges measure up for the fashion industry?

Best for Brexit

The industry has been operating against a backdrop of uncertainty about Brexit for three years. The lack of certainty about the future has led consumer confidence, footfall and sales to fall, while import costs have risen and sterling has weakened.

“The number one priority is to resolve the Brexit issue without a hard Brexit,” said Daniel Rubin, founder of footwear retailer The Dune Group. “It’s the greatest risk we face. A successful resolution would mean one negotiated that includes a business point of view and one that avoids any further delays.”

He is not alone in citing the disruption unleashed by Brexit as unhealthy for the economy and for retailers, many of which have fallen by the wayside in the past three years. And retailers are clear that a negotiated departure is preferable to a no-deal “hard” Brexit.

Johnson is not taken seriously in Europe and tends to be unrealistic in what he says

Daniel Rubin, founder of footwear retailer The Dune Group

Johnson has said Britain will leave the European Union by the agreed departure date of 31 October and has not ruled out a no-deal Brexit.

“That doesn’t give you a huge amount of confidence in the direction the government will take,” said Rubin, who would prefer to see Hunt in the top job. “[Former foreign secretary] Johnson is not taken seriously in Europe and tends to be unrealistic in what he says.”

Julian Dunkerton, interim CEO of Superdry, told Drapers: “Patently I wouldn’t want to see Boris as prime minister. He accelerates the risk of a hard Brexit and there is no mandate from the public or parliament to even think about one. It’s a ridiculous risk to our nation.”

Hunt has not explicitly ruled out a no-deal Brexit and says he would opt for one if there is no prospect of a deal with the EU by 30 September.

One head of wholesale at a footwear brand said he believes Hunt “could be more likely to bring a cross-party group together to negotiate”. 

Industry sources observed that Hunt’s views were more commercial and he has talked up his entrepreneurial background during the leadership campaign. Unlike Johnson, he acknowledges that tariffs resulting from a hard Brexit would be damaging for businesses.

Charles Clinkard, managing director of the eponymous footwear chain, said business will be impacted from all angles. As well as 31 stores, the retailer also distributes the Gabor brand in the UK.

“We suspect there will be delays on goods coming in because the reality with tariffs is that someone will need to check,” Clinkard warned. “Also, suppliers say they will pass on the cost of tariffs to us as retailers through invoices. We have nowhere to go until we know what’s happening.”

Confirmation of any import and export tariffs would be welcomed as a priority.

 

Tax incentives

Both Johnson and Hunt have voted in favour of corporation tax reductions in the past. Of the two, only Hunt has outlined proposals to change corporation tax as part of his leadership campaign: he has promised to reduce the rate to 12.5% to attract businesses to Britain after Brexit. Such a cut would make it the lowest rate of any major economy and would, according to Hunt, increase economic growth.

The Institute for Fiscal Studies warned this reduction would cost £13bn a year in the short term and would give the government no room to relax its austerity policies.

From an industry perspective, any reduction in corporation tax would be beneficial and Hunt’s proposal supports the view that he has a better grasp on business needs than Johnson.

The government must look to create a favourable business environment for the transition to the circular economy

Susan Harris, technical director at sustainability consultancy Anthesis Group

Martin Newman, founder of retail consultancy The Customer First Group, suggested cutting corporation tax by 50% in the short term to stimulate investment: “The Brexit malaise has really taken hold over the past year. [The next prime minister] needs to kickstart the economy.”

Using taxation to reshape the industry’s future in the wake of environmental targets would also be welcomed.

“The government must look to create a favourable business environment for the transition to the circular economy,” said Susan Harris, technical director at sustainability consultancy Anthesis Group.

“That means encouraging re-use and repair via the taxation regime, and incentivising on-shore development of some of the recycling technologies being developed, such as the new wave of recycled polyester and cotton.”

Kalkidan Legesse, co-founder of Devon-based independent brand and retailer Sancho’s, said: “If the government is to be realistic about how supply chains work in future and making Britain successful post-Brexit, it needs to invest to improve the manufacturing. Britain can manufacture the clothing it wears but it needs research-based commitments to create the right pathways.”

 

High street help

Johnson’s pledges to help the high street include planning reforms that will make change of use easier for premises, remove business rates on ATMs and a promise to get behind the chancellor’s £675m Future High Streets Fund.

Hunt has pledged to reform business rates – an issue of critical importance for fashion retailers.

Business rates are higher than rateable values in some places

Oliver Tress, founder and managing director of Oliver Bonas

“No retailer thinks business rates are a successful tax. It’s failing in its job and distorting the market,” said Oliver Tress, founder and managing director of Oliver Bonas. “Business rates are higher than rateable values in some places. It can’t go on being out of kilter to the extent that it is stopping investment.”

Superdry’s Dunkerton agreed: “There has to be a correlation between the rates charged on premises and the rent. Landlords have been intelligent and flexible about their approach to the situation and it’s time for the government to realise it’s out of sync with its rates bill. Landlords are better at assessing what a property is worth.”

Hunt’s reform plans focus on the current retail discount rate, which is available to businesses with a rateable value below £51,000. Hunt plans to scrap business rates altogether for those eligible businesses.

Commercial property agency Colliers International says this would save newly exempted businesses up to £6,500 each and would remove taxes on an estimated 24,500 businesses based in Birmingham, Manchester, Leeds, Newcastle and Bristol.

Its head of business rates John Webber, however, believes an ill-considered reform of business rates could have a detrimental effect on larger retailers.

“Hunt is majoring on small businesses and, while we have no issue with the government helping such businesses, this is not where the problem with the high street lies,” he said.

Large retailers, such as Marks & Spencer and Debenhams are most affected by the business rates system.

“Should Hunt’s plans be implemented and the smaller businesses pay even less of business rates burden, the £26bn collected by business rates will have to be raised from somewhere. Without proper reform, this burden will land on the bigger retailers.”

 

The Drapers Verdict

Neither Johnson nor Hunt have gone into great depth on how their proposed business policies could help the UK fashion sector.

For the industry, however, Johnson is a much riskier candidate, given his unpredictability at a time when certainty around Brexit and driving growth are desperately needed. On the whole, Hunt’s understanding of business makes him the preferred candidate.

The message for which ever contender eventually wins the race is clear. Delays around Brexit will only exacerbate the industry’s problems and Britain should not leave the EU without a deal: there has to be some agreement.

In addition, the next prime minister should prioritise ways for the industry to think afresh, from where and how it sources, to how it drives consumer interest on the high street. Wholesale reform of business rates would help.

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