Corporate Affairs

Flying the Flag for British Luxury

In the first in a regular series of indepth updates from Walpole's Corporate Affairs team, we take a look at the progress made across several key areas for the business and the luxury sector as a whole, including: VAT RES campaign (tax-free shopping); Exhaustion of IP Rights consultation; the CMA review of Vertical Block Exemption Regulation; and an update on our Sustainability work.
29th Jul 2021
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Corporate Affairs Flying the Flag for British Luxury

Overview

 

In Helen Brocklebank's latest CEO letter, she signed off with the sentence: "Everything we do at Walpole is our love letter to you”- a sentiment the Walpole team is inspired by throughout our working lives. It’s impossible not to feel a huge sense of pride in representing a sector that includes ‘jewel in the crown’ British brands and flagship cultural institutions. Your power and importance lie not simply within the beautiful things and experiences you produce - and in making all our lives infinitely more enjoyable - but in the soft and economic power you generate for the UK.

The British luxury sector has been an incredible success story over the last decade and prior to lockdowns - and the cessation of international travel - brought in £48 billion to the economy each year, supporting well over 160,000 sustainable and skilled jobs throughout the UK, and grew at a rate of nearly 10% per annum (more than twice the growth of GDP). And until the pandemic, closely followed by the burdens introduced by Brexit, the sector has had little cause to call on Government for support. However, times have changed, and Walpole is evolving to ensure the very best environment exists for our members to prosper within this new landscape. We need government to fully understand why our sector is so crucial to the the UK's ability to emerge from this period of monumental turbulence and to thrive.

Sadly, over the last 18 months, we've seen that this is not something universally recognised by all policy makers in UK government, although we do have allies and champions in many quarters - most notably at the Department of International Trade and the GREAT Britain and Northern Ireland campaign.

In response, Walpole, in partnership with the New West End Company, the Association of International Retail, Global Blue, Value Retail and others, mounted a hard-hitting campaign to stop the abolition of tax-free shopping (VAT RES) in 2020. The Chancellor was not for turning, and our campaign to reverse the decision continues, but we learnt valuable lessons along the way which crystallised our understanding of things we already knew: there is huge power in working together, and there is an urgent need to ensure that Numbers 10, 11 and the Cabinet Office fully understand why our sector is so important and what it needs to succeed.

We have put a plan in place to make this happen.

We’ve increased our in-house resources by expanding the team; we’ve appointed Hawthorn Advisors to build our sphere of influence and ensure the luxury sector is acknowledged and understood; and we’ve established a Corporate Affairs working group that will enable us to share and receive knowledge and expertise around policy changes coming down the track. These are exciting times and it is with this in mind that we will be reporting back to you each month on our progress.

Below, you can see some of the key topics that we have been campaigning for on your behalf in order to keep the sector safe and strong and represented at the highest level.

If you have any questions, please get in touch with Charlotte Keesing, Tania Pearson and Carly Von Speyr. We are available and would be delighted to talk.

VAT Retail Export Scheme (VAT RES) Campaign

 

The government’s decision to end VAT RES last year is an issue that remains a major strategic priority for Walpole and our members.

In September 2020, Walpole wrote to the Chancellor requesting an urgent review of the decision and joined forces with the New West End Company along with the British Retail Consortium (BRC)¸the Association of International Retail (AIR), and Global Blue to develop and execute a tactical lobbying and media campaign to get this decision reversed. This campaign was intensive and is ongoing. We put before the Treasury and Chancellor evidence showing the negative impact the decision will have for businesses and jobs and we, along with our partners, continued our efforts and widened our stakeholder group to include ECCIA, Value Retail, London Heathrow, and Selfridges, and solicited the help of our members to write to the Chancellor and regional MPs.

Walpole placed and collaborated with stakeholders to secure national media coverage; undertook regular conversations and updates with our Government contacts; wrote again to the Chancellor, the Secretary of State for International Trade and President of the Board of Trade; the Secretary of State for Digital, Culture, Media and Sport, Parliamentary Under Secretary of State (Minister for Exports), the Leader of the Opposition, Scotland’s Finance Secretary and Nickie Aiken, MP; and commissioned Frontier Economics to produce a study analysing the price elasticity of international visitors – this conclusive evidence shows that international shoppers, particularly high-net-worth shoppers and the Chinese market, are highly sensitive to price increases and are highly mobile.

The Office of Budget Responsibility undertook a review of HMT’s evaluation of the costs of implementing this policy change, ahead of the Chancellor’s Spending Review on 25th October 2020. The OBR confirmed that ending the scheme would only save the Exchequer an average £360m a year over the next five years rather than the £500m a year the Treasury claimed – confirming that the Treasury has over-estimated the revenues they would get from abolishing VAT RES. The OBR also stated that the government’s costing is based on a ‘highly uncertain estimate’ of how prospective visitors to the UK will react to this change, which it has made based on a single study, and highlights ‘there will also be costs as the UK becomes less attractive for affected tourists relative to alternative EU destinations such as Paris or Milan’.

On 1st December, Helen Brocklebank sent a letter co-signed by Annoushka, Boodles, Browns Fashion, CHANEL, Church’s, ERDEM, FARFETCH, Ferragamo, Fortnum & Mason, Harrods, Johnstons of Elgin, LALIQUE, Longchamp, Mulberry, N PEAL, Paul Smith, Penhaligon’s, Rupert Sanderson, Smythson, Selfridges Group, New West End Company, Association of International Retail, Value Retail, and Watches of Switzerland to the Chancellor repeating the request that he retain the VAT Retail Export Scheme (VAT RES) and extend it to EU visitors.

Despite our efforts, the Government laid a Negative Statutory Instrument to pass this policy into law on 3rd December 2020. At that stage, the only realistic available constitutional route to preventing this decision from becoming law was for MPs to sign an Early Day Motion (EDM), which was tabled and supported by Conservative, Labour and SNP MPs.

London Heathrow and Global Blue filed for a Judicial Review (JR). The court subsequently ruled that the Government did follow due procedure during the decision-making process for abolishing VAT RES.  This result was disappointing but not a surprise given the narrow scope of judicial reviews on the legality of the decision-making process and it is worth noting that the court makes no comment on the decision itself.

You can see the full judgement here and a summary of the review here from AIR.

The judicial review served a significant purpose by making the Government reveal publicly the evidence it used to reach its decision. Walpole will use this information in our continued campaigning work with NWEC, AIR and other partners to get this decision overturned. We will be presenting further evidence to the Chancellor when international visitors resume global travel.

 

The CMA review of Vertical Block Exemption Regulation

 

The UK Competition and Markets Authority (CMA) is reviewing the version of the EU Vertical Block Exemption Regulation (VBER) – also known as Selective Distribution - retained in UK law following the end of the Brexit implementation period. The current UK legislation expires in May 2022. This will enable the UK to determine its future approach. The review involves a formal consultation with industry stakeholders.

European Union (EU) VBER legislation is also currently under review and the associated consultation for this closed on 26 March 2021. Whilst the treatment of vertical agreements under EU and UK competition regimes remains aligned for now, the concurrent EU and UK reviews introduce potential for divergence.

Selective Distribution is a central pillar of the luxury goods business model and refers to the carefully selected and managed network of partners and distributors through which brands are able to distribute their products to maintain and enhance the luxury retail experience for the customer and, importantly, preserve the aura of luxury.

The right to Selective Distribution, or VBER, is fundamental to the luxury business model, because it gives the sector regulatory protection. The vertical rules set out what is permissible in terms of the distribution and re-sale of goods, which in turn impact upon the owner’s ability to protect the brand.  It is also important to have legal certainty so owners can be confident of creating distribution systems which are robust and legally enforceable.

The CMA’s consultation provided the luxury sector with an opportunity to a) ensure that its current protections continue, enabling the sector to maintain the necessary control of our distribution channels to continue to meet customer expectations; and b) to advocate for a UK approach that minimises divergence with EU law in respect of the protections afforded.  

The CMA held a series of roundtables with key stakeholders (trade bodies, economists, business and lawyers) in advance of opening consultation to understand the UK specific priorities. Walpole secured a dedicated session for the luxury sector with a representative group of Walpole members and the CMA team leading the review in order to explain the unique nature of our business model, the level of customer expectations necessitating VBER safeguards and exceptions and our priorities in the review.

This roundtable took place on the 29 April 2021 with representatives from Walpole, external legal counsel (Charles Russell Speechlys) and a selection of brands representing the fashion and accessories, beauty, drink, retail, perfume and jewellery vertical sectors. Walpole’s specific objectives for the meeting were as follows:

  • Foster an open dialogue between the sector and the CMA ahead of the review process.
  • Inform and educate the advisors and decision makers at the CMA as to the value of the sector to the UK economy and the critical importance of appropriate control over our distribution models to ensure long-term sustainable growth.
  • Provide insight into the functioning of our distribution models and our views on the key priorities to be covered in the review.

Representatives from the CMA included the Assistant Director in Policy and International and Legal Director with two other CMA team members.

Walpole representatives took the opportunity to brief the CMA team on the specifics of Walpole’s member businesses, the importance of protecting our business model, and to provide insight into our distribution arrangements and their importance in our ability to meet customer expectations.

The CMA consultation closed on Thursday 22nd July 2021, and the CMA will present its final recommendations to the Secretary of State for Business, Energy and Industrial Strategy in the autumn.

Walpole made its final submission ahead of this deadline; please contact [email protected] for a copy. ECCIA also made a submission on behalf of luxury sector businesses in the European Union.

The Exhaustion of IP Rights consultation

 

The Intellectual Property Office, a government executive agency sponsored by the Department of Business, Energy and Industrial Strategy, has launched a consultation on the UK’s future regime for exhaustion of intellectual property (IP) rights, which can be read here. This consultation closes on 30 August 2021 and Walpole will make a submission on behalf of the British luxury sector.

Earlier this week, Walpole joined forces with the British Fashion Council (BFC) and the UKFT to provide members with an introduction to the government’s consultation. Sally Britton, from Walpole strategic partner Mishcon de Reya, provided an overview of exhaustion of rights regimes and answered questions in relation to the consultation. 

The question of what our future exhaustion regime should be is an important one because it will govern future rules on parallel trade.  Parallel trade is the cross-border movement of goods that have already been placed on the market in a specific geographic territory. The consultation sets out options for the UK’s future exhaustion regime and is of importance to businesses and consumers as any potential changes may impact a wide range of sectors where there is parallel trade of physical goods which are protected by copyright, design rights, patents and/or trademarks. 

We are running a follow up session with the stakeholder group involved in shaping Walpole’s VBER consultation response as a first step in developing Walpole’s response to the IPO. The session will explore a number of political challenges around the consultation and further input will be invaluable.

The BFC, UKFT and Walpole encourage all members to participate in our survey to ensure we capture members concerns and reflect them in the final submission. You can find the survey here.

Hawthorn Advisors

 

Struggling public sector finances have left the UK Government looking for ways to raise further funds, with political pressure to hit businesses. The experience of the UK Government’s decision to end the VAT Retail Export Scheme illustrated to Walpole that the British luxury sector is viewed as a politically soft target. While the sector has received incredible support from the Department of International Trade particularly in its steadfast progress in making the UK’s free trade agenda a reality and in its recognition of the sector’s soft and economic power, we have also witnessed political decisions from Government which have made life more difficult for luxury brands and which do not reflect the sector’s considerations fully.

It is with this in mind, that Walpole has expanded its in-house team and brought in Hawthorn Advisors to enable us to change the narrative around luxury and ensure that Government and other influential decision makers give the industry the recognition and share of voice on policy that it deserves.

Hawthorn Advisors, a strategic communications agency with significant expertise in corporate reputation and leadership; political advisory and policy; capital markets; digital strategy and research insights are driving forward a multi-platform engagement campaign to secure wide level support and understanding for the sector amongst MPs and each of the Government departments. Their strategy is focused on highlighting the significant role luxury companies, large and small, play in supporting the Government’s key objectives.

In addition to this support, we are delighted that they have joined us as members of our newly established Corporate Affairs Working Group and look forward to reporting back on our progress.

 

Other Initiatives

Sustainability Manifesto

 

In January 2020, we launched the Walpole Sustainability Manifesto, which is aligned to the UN Sustainability Goals and aims to set industry best practice aspirations in sustainability for the British luxury sector with four overarching principles:

1. Lead the transition towards a CIRCULAR ECONOMY

2. Safeguard the environment and NATURAL RESOURCES

3. Guide PARTNERS AND SUPPLIERS towards sustainable practices

4. Advocate equal and respectful WORKING CONDITIONS

Throughout the course of 2020, our members including Burberry, dunhill, Harrods, Johnstons of Elgin, Mulberry, The Savoy and Chivas Brothers among many others came together regularly in working groups facilitated by Walpole to share their passion, knowledge and expertise with one another and to galvanise collective action that is powering the sector forward in achieving the important goals set out in the Manifesto.

These working groups continue to meet and are divided into categories including beauty & grooming; fashion & accessories; food & drink; hospitality & services; jewellery, watches & precious metals; interior design & craftsmen; media; and retail.

Earlier this year, Walpole published a comprehensive report on the progress its members have made in powering their businesses towards a net carbon and zero waste future, one year on from the launch of its sustainability manifesto.

The report can be read here.

Love Letters from Britain

 

The first season of Love Letters from Britain - a new series of short documentary-style films uncovering the untold stories of UK’s most innovative luxury brands – launched successfully this month

Love Letters from Britain brings to life exactly why the very best of Britain’s creative, entrepreneurial and innovation talent is the secret to the UK’s international appeal and why these iconic brands are a powerful and alluring calling card for the country.

Produced by BBC StoryWorks Commercial Productions for Walpole, the association for British luxury brands, and including stories supported by the GREAT Britain & Northern Ireland Campaign, Love Letters from Britain aims to inspire a global audience by showcasing creative individuals and innovative businesses changing the face of a sector worth £48b to the UK economy.

Season one, features some of the UK’s best loved brands including Bentley, Bicester Village, dunhill, Jo Malone London, London Sock Company, Molton Brown, The Balvenie, The Lakes Distillery, and the soon to be opened Londoner Hotel.

A second season is currently in production and will feature themed programmes exploring different facets of the sector and continue with the focus from season one on what ‘luxury’ means today, examining its relevance and exactly why the UK’s luxury businesses are so fundamental to the country’s appeal all around the world. It will launch towards the end of 2021.

Supported by a 12-month collaborative marketing campaign with advertising on BBC.com plus a targeted social media campaign, Love Letters from Britain is available for international audiences on a dedicated BBC StoryWorks’ digital hub as well as globally accessible to view here.