Fashion retail’s fiscal priorities for John Healey’s Budget

New chancellor John Healey gave his “growth speech 2026” on 7 September, pledging “to make Great Britain ‘growth Britain’ again”. Ahead of his first Budget on 28 October, Healey said he recognised that “the cost of business – that’s energy bills, regulation burdens, planning constraints, labour costs – has grown since Covid”. He committed to reducing the burden of business regulation by 25% by the end of this parliament, claimed “a moral duty” to fix the “scar of youth unemployment” and referenced blighted high streets. Healey identified some of the issues that have hammered the retail sector in the last three years. Estimates vary on how much overheads have risen for a typical fashion retailer, but a rise of 19% to 24% over the last three years, driven by wage costs, is reasonable, based on various sources of industry data (table, below). On top of that, UK consumer confidence is gloomy as households worry about rising interest rates, job security, and the cost of living. British Retail Consortium-Opinium research conducted between 8 and 11 September showed consumer expectations for the state of the economy over the next three months fell to -34, down from -28 in August. Advertisement What is on fashion retail’s wishlist? A Drapers poll in September found that business rates reform is the industry’s top priority for the new man at 11 Downing Street, followed by employment and restoring tax-free shopping for tourists (see graph). Healey must offer robust policies on reducing planning complexities, improving town centres and cracking down on crime, as well as measures to boost consumer confidence and speed up the reform of rules on low-value imports, retailers tell Drapers. The retail sector contributes an estimated 5% of GDP to the UK economy, and provides direct and indirect employment to 5.7 million people, the British Retail Consortium (BRC) calculates. Uncertainty about the future has made planning difficult and stymied the sector, retailers report, so now the chancellor has a make-or-break opportunity to set things straight. “If the government wants brands like Jigsaw to open more shops … give us a reason to invest,” says David Ross, owner of the brand. “That means three things: confidence in where the economy is going; confidence that the next Budget won’t slap more taxes on us; and confidence that if a business invests in a new store on a high street, the reward is worth the risk.” Retail’s business rates burden Ross is among many retailers who identify business rates – which, as of April 2026, have five different tiers, based on the rateable value of a property – as a key area to fix: “Retail is one-20th of the economy and pays over a fifth of the rates bill, and the bill goes up every April, whether you’ve had a good year or a bad one.” Primark wants “further progress in the Budget on business rates reform”, says Kari Rodgers, UK retail director. This would include removing [large] shops from the higher-value multiplier “and avoiding further increases in the rates burden by cancelling the Consumer Price Index-linked uplifts”. Advertisement Business rates are widely seen as archaic, as they tax buildings on rateable value rather than business performance, they hit physical shops harder than online retailers, update slowly and rise almost automatically each year. “What we need is simplification so that we can all get on with life,” says Julian Dunkerton, Superdry & Co CEO. “I would suggest that business rates are always a percentage of the rent payable, because I can’t think how many of my shops have had to go to an arbitration process. It just is a very cumbersome, tiring, long-winded process,” he emphasises. Rising costs of employment Employment costs are another worry. “I’m much more worried about the cost of employment than business rates,” Next CEO Lord Wolfson said at the retailer’s 2026/27 half-year results presentation in September. “Business rates, as a percentage, are much smaller than employment costs.” Next forecast that the latest increases in the National Living Wage and National Minimum Wage, combined with higher employer National Insurance contributions, would set it back £42m in the 2026/27 financial year. Payroll makes up 50% of a shop’s costs, the CEO of a major chain tells Drapers (table, above). He says every percentage point increase in the National Living Wage – the minimum rate for over-21s – costs a store about £2,000: “That’s what’s squeezing profitability. A further 5% increase or 5%-6% increase in the National Living Wage is going to hit the high street. We’re not asking for zero. For our head office over the next year, we’re looking at a 3%-4% wage increase. Every per cent counts.” In just two years, increases to National Insurance and the National Living Wage have added £6.5bn in costs, while further employment reforms risk making it even harder to create and sustain jobs, says Helen Dickinson, CEO of the BRC. Meanwhile, the “scar of youth unemployment” is a crisis the retail sector is well placed to help the chancellor tackle, retailers assert. Retail and its supply chain employ 23% of all workers aged 16 to 25 – an estimated 780,000 jobs – BRC data from August 2026 shows. “We’d welcome measures that support youth employment,” says Primark’s Rodgers, where around 45% of UK staff are under 25, many in their first job. Raising the National Insurance threshold for employers would reduce the cost to retail of creating and sustaining entry-level roles, and give businesses capacity to invest in jobs, skills and training, she says. We’d welcome measures that support youth employment Kari Rodgers, UK retail director, Primark Lowering the employers’ threshold from £9,100 to £5,000 from 6 April 2025 was a tax on entry‑level labour, leading to fewer young staff, many retailers tell Drapers. With rising youth unemployment, subsidising the minimum wage for the under-twenties would allow businesses to train up young people and bring them into employment, suggests Dunkerton. “Raise the employer threshold and give employers the flexibility to take on school leavers,” urges Jigsaw’s Ross. “Make it cheaper and more flexible to hire so that British businesses can create even more jobs and help more young people into work.” The government could subsidise retailers to employ or train people aged 16 to 24 who are not in employment, education or training (NEET), he proposes. Planning reform required Retailers also want planning laws reformed to stimulate economic growth. The CEO at a major fashion retail brand says: “Anything to make it simpler to open a new store would be appreciated. We get lost in planning for what feels like four to six weeks, when really, we could be getting people working, and I think that’s what everyone wants, isn’t it?” Dunkerton is critical: “Planning is not fit for purpose in the UK as a process. Councils must have a strict timeline for granting or not granting planning [consent].” Restore the VAT refund for tourists As Healey grapples with the big issues of employment, business rates and planning, the chancellor could win some quick brownie points from retailers by restoring VAT relief for tourists from outside Europe who shop in the UK – a system abolished after Brexit in 2021. VAT relief for tourism is a no-brainer. All the Asian tourists are going to Paris to spend their money Julian Dunkerton, CEO, Superdry & Co Opposition leader Kemi Badenoch said on 21 September that the Conservatives would offer VAT refunds for non-European Union visitors – a scheme her own party scrapped. “VAT relief for tourism is a no-brainer,” says Dunkerton. “All the Asian tourists are going to Paris to spend their money. We have to go along with what [the whole of Europe] is doing.” The government should consider introducing a visitor incentive scheme to attract more high-value international visitors and encourage greater spending across all regions of the UK, Helen Brocklebank, CEO of luxury industry body Walpole, tells Drapers: The UK’s international competitiveness is “being steadily eroded by the cumulative impact of rising business costs and a growing volume of regulation”. Scrap the “de minimis” tax loophole for cheap imports An immediate step the chancellor can take to support UK companies is to scrap the “de minimis” rules, which allow parcels valued at less than £135 to be imported without customs duties and VAT, retailers say. The UK announced in July 2026 that it would remove the £135 duty relief and introduce a permanent replacement regime by October 2028 at the latest. Primark’s Rodgers says: “Accelerating reform of low-value imports would help ensure businesses investing in UK stores, jobs and communities can compete on fair terms, while strengthening confidence that products entering the UK meet the standards consumers expect.” “Every month the current loophole remains in place, it disadvantages retailers that invest, employ people and pay taxes in Britain,” says Dan Finley, group CEO of Debenhams Group. “Bringing reform forward would help level the playing field and send a clear signal that the government is serious about supporting British retail.” High street regeneration High street decline is a big issue on retailers’ minds. On 28 September prime minister Andy Burnham announced a £210m package to convert derelict high street buildings into use (news, overleaf). Rodgers says continued investment in neighbourhood policing, stronger enforcement and close partnership working between retailers, police and local partners will be vital to making our high streets safer. Unlike previous governments, there have been few clues on the direction of travel. What has been proposed worries some, as Erica Vilkauls, former CEO of LK Bennett, spells out: “Right now, too many of the proposals circulating – devolution, planning fragmentation, labour‑tax hikes and the continued refusal to reinstate tax‑free shopping – are economically incoherent.” A Treasury spokesperson says: “Decisions on tax are a matter for the chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.” Another fashion CEO adds: “Our overriding wish is for certainty, and an approach that doesn’t leave many doors open for the next six to 12 months.” As retailers brace for the Budget on 28 October, many acknowledge that the global economic backdrop is gloomy. But they argue that there are policy levers the chancellor can pull to ease some of the biggest pressures facing the sector. Have your say or a new account to join the discussion.