Some of fashion’s biggest retailers and resale platforms including Primark, H&M and Vinted are urging governments to overhaul tax rules and labour costs to help make circular fashion commercially viable.

Arc’teryx, Etsy and Zalando are also among the 68 organisations calling for policy changes across the EU, US and Canada, as new research from the Ellen MacArthur Foundation suggests resale and repair models are being held back by unfavourable economics.

The Foundation said the current system makes it more profitable for businesses to produce new clothing than to repair or resell existing items, despite growing consumer demand for second-hand and more sustainable options.

The group is calling for reduced VAT in the EU and the removal of sales tax in North America on resold products and repair services.

It is also urging governments to lower labour taxes in the EU and introduce tax credits in North America for businesses creating jobs in resale and repair.

The statement also calls for Extended Producer Responsibility schemes to fund the infrastructure needed to collect and sort clothing at scale.

H&M Group chief sustainability officer Leyla Ertur said resale was still being “economically penalised” despite helping to keep products in use for longer.

“Resale keeps products in use while meeting customer demand for more affordable and sustainable choices,” she said.

“But today, this business model is still economically penalised.

“If governments are serious about circularity, they need to act by removing double taxation, reducing labour costs, and removing other barriers that hold resale back.

“Fixing the economics of resale is one of the fastest and most concrete ways to scale circularity in fashion.”

The call comes through The Fashion ReModel, an Ellen MacArthur Foundation project designed to help brands, retailers and platforms scale circular business models and generate revenue without relying on the production of new clothing.

According to the Foundation, participating brands, retailers and platforms grew revenue from resale, rental, repair and remaking four times faster than the rest of their participating businesses during the first year of the initiative.

However, it said circular models still account for only a small share of overall revenue across all 13 participants.

The Foundation warned that resale and repair businesses face high labour costs and can be taxed repeatedly as products change hands, creating a system that favours new production over keeping garments in use.

Its new report, The New Bottom Line, found targeted policy changes could raise gross profit margins to up to 55 per cent for resale and around 41 per cent for repair.

The market is projected to reach $393bn by 2030, growing at twice the pace of the wider fashion industry.

Vinted senior director of sustainability Marianne Gybels said second-hand fashion was becoming part of everyday life across Europe, but needed policy support to scale further.

“To make circular businesses like second-hand the first choice, they have to consistently deliver on what matters most to consumers, being reliable, affordable, and easy to use,” she said.

“We’re already seeing this shift across Europe, where buying and selling second-hand has become part of everyday life, with significant room to grow further.

“To unlock its full potential, policy should support business models that make circular choices more accessible.”

The Ellen MacArthur Foundation said scaling resale and repair could create local jobs across repair, sorting, logistics and retail, while also cutting carbon emissions and easing pressure on waste systems.

Ellen MacArthur Foundation fashion and textiles lead Mark Buckley said fashion had significant potential to become more circular, but warned that current commercial incentives were working against that shift.

“Fashion’s potential to become more circular is significant, but the economics are stacked against resale and repair,” he said.

“Businesses are incentivised to use new resources rather than invest in keeping clothes in use for longer.

“Our research shows targeted policy adjustments, using existing policy levers, could materially improve the economics and unlock a multi-billion dollar opportunity.”

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