H&M, Inditex and the Circular Economy Act: Who Pays for Fashion’s Waste

Europe’s largest fast-fashion groups are asking Brussels to tax second-hand clothes less. The European Commission is weighing lower VAT on resale and repairs in a consultation that closes on 4 November, and its Circular Economy Act, which will set what textile producers pay for collecting and recycling clothes, has moved from 11 to 18 November.

The study behind the demand, The New Bottom Line, published in May by the Ellen MacArthur Foundation, shows who gains. If resale operators keep the savings, their margins rise above the margin on a new garment, and those operators include the resale businesses of the groups that signed. Public budgets carry the cost.

The tax break would apply to clothes that are already in circulation. Meanwhile, the industry keeps making more of them. Global fibre production reached a record 139 million tonnes in 2025, according to Textile Exchange, and most of the growth came from fossil-based fibres, polyester above all. A lower VAT rate on resale treats a polyester T-shirt exactly like a wool coat.

Two dates in Brussels frame the demand. The Commission’s consultation on VAT and the circular economy closes on 4 November, and the Circular Economy Act follows on 18 November. The consultation opened on 10 September and covers three questions: how second-hand goods are taxed, how VAT treats usable goods that are destroyed, and how businesses deduct VAT on company cars. The second question reaches straight into fashion. An estimated 264,000 to 594,000 tonnes of textiles arrive on the EU market each year and are destroyed unworn. A proposal to amend the VAT Directive could follow in the second quarter of 2027.

The Circular Economy Act moves faster. Eric Mamer, who heads the Commission’s environment department, set out its scope at an industry meeting in Brussels on 28 September: it is meant to clear the way for circular products across the single market, set clear and transparent criteria for the organisations that run producer responsibility schemes, and get more out of Europe’s waste streams, with recovered materials moving more easily between countries.

The demand from May was already on the table at that meeting. Its host, the Circular Fashion Federation, signed the statement itself and presented a survey of around 30 repair, resale and garment-care operators. Asked what they would do with lower VAT, most said they would put the freed margin into wages, staff, equipment and traceability. A small share would reach prices.

Producer responsibility for textiles is already settled law. The revised Waste Framework Directive entered into force in October 2025, member states have until June 2027 to write it into national law, and their textile schemes must be running by April 2028. French and Italian fashion is drawing up its own rules in parallel, and the federations FHCM and CNMI have agreed 46 shared requirements for luxury supply chains.

At H&M Group, resale is growing far faster than the sale of new clothes. In 2025, the group’s net sales rose 2 per cent in local currencies. Over the same year its resale business, which includes Sellpy, the second-hand platform H&M has controlled since 2019, grew 31 per cent to SEK 1.84 billion, about 0.8 per cent of group sales. The main business has since stalled. In the nine months to August 2026, sales were flat in local currencies and fell 4.4 per cent in Swedish kronor, while operating profit rose 11.9 per cent, which chief executive Daniel Ervér put down to purchasing, cost control and leaner operations.

Inditex, the owner of Zara, reports from a position of strength. In the six months to July, its sales rose 7.6 per cent to €19.8 billion and its net profit reached a record €2.98 billion.

The study itself sets out the pressure on the model both groups run. Raw materials are harder to secure, it says, sourcing costs are climbing and margins are already tight, and a linear business that stays as it is will likely grow less profitable. Inside the foundation’s project, revenue from resale, rental, repair and remaking rose four times faster in the project’s first year than the rest of the revenue in the parts of the companies taking part, from a small base.

The project behind the study is backed by H&M’s own foundation. In February 2025, the H&M Foundation committed US$15.4 million over three years to The Fashion ReModel, which the Ellen MacArthur Foundation launched at the Global Fashion Summit in Copenhagen in May 2024 to test how fashion companies can make money without making new clothes. The New Bottom Line is its policy report.

H&M Group takes part with three of its own brands, ARKET, COS and WEEKDAY, alongside Arc’teryx, Crystal, Decathlon, eBay, John Lewis, Primark, Reformation, Tapestry and Zalando. When the report appeared, H&M Group and the H&M Foundation both signed the statement that went with it.

The report names its participants on its third page and thanks its further contributors at the end, among them people from Vestiaire Collective, ThredUp and United Repair Centre, three businesses the proposed measures would support. The source of the project’s funding appears nowhere in the report.

The figures rest, in the report’s own words, on “limited real-life data”. Eunomia Research & Consulting gathered them in interviews with resale and repair businesses held under non-disclosure agreements, and KnowlEdge Srl refined and validated the model.

The study’s headline numbers are the margins of the companies that run resale and repair, and its model reaches them through three changes. VAT on resale and repairs in the EU falls to 6 per cent, against 20 per cent in France today. Employers’ social contributions on resale and repair jobs drop to 10 per cent, from 26.7 per cent in France, 16.8 per cent in Germany and 14.1 per cent in Poland. And every new garment carries a producer fee of 25 cents, part of which flows back into resale and repair, as France’s repair bonus already does.

If the operators keep the whole saving, their gross margin on mass-market resale climbs from 30 per cent to 53.1 per cent in France and to 55.2 per cent in Germany. For new mass-market clothing, the study assumes 50 per cent. On its own figures, the seller of a resold garment would keep a larger share of its price than the brand kept on the first sale.

The study also models a gentler case, in which operators hand three quarters of the saving to their customers. A second-hand piece then drops from €7.45 to €6.60, and the seller’s margin rises to 36.3 per cent. How much reaches the customer is the companies’ choice, and the operators surveyed in Brussels in September expected only a small share to reach prices.

For the new garment, the producer fee comes to ten cents. In the study’s own example, a €13.50 piece of mass-market clothing costs €13.60 once the fee is added, and its margin moves from 50.0 to 49.6 per cent.

The cost of the package lands on public budgets. Lower VAT and lower social contributions mean less revenue for governments and social insurance funds, while part of the producer fee can flow back to the resale businesses of the producers who paid it. Professional resellers in the EU can already use the margin scheme, which charges VAT on the dealer’s margin alone.

Polyester drives the growth in new fibre. Textile Exchange counted 82.5 million tonnes in 2025, 59 per cent of all fibre, and 72.8 million tonnes of it was virgin, spun from petroleum. Recycled polyester came almost entirely from plastic bottles, and fibre recycled from old clothes made up about 0.3 per cent of all polyester, as Global Fibre Production Hits a Record 139 Million Tonnes, and the Growth Is Fossil set out.

The study is frank about what this volume means for its own model. Resale and repair can take in only a fraction of the clothing placed on the market, it says, and collectors report that what reaches them is getting worse, which lowers its value for resale. In the mass market, replacing a zip can cost more than a new garment. Resale pays where collection and sorting come almost free, through donations, through the unpaid work of people listing their clothes online, or through informal and non-profit sorters.

Polyester stays cheap. In the week of 19 to 23 October, Brent crude rose 6.24 per cent, and over the same days prices fell for all eight grades of Chinese polyester filament yarn tracked by Fibre2Fashion.

Dalena White, secretary general of the International Wool Textile Organisation, put the gap into a single sentence when The Silent Luxury asked her about the proposal in October. “Tax relief on resale and repair helps, but as this applies to every garment irrespective of what it is made of, it has no bearing on fibre choice,” she said.

The producer fees now being designed may even favour synthetics. In written evidence to the House of Commons Environmental Audit Committee, cited in its policy briefing of 5 October, the London-based Fashion Roundtable argued that the EU’s criteria for adjusting those fees weigh recyclability, durability and reparability more heavily than biodegradability or natural fibre content. On that scale, polyester often scores better than wool.

Five months after the statement, the questions about the start of the chain remain open. In October, The Silent Luxury sent written questions to the European Commission, the Ellen MacArthur Foundation, H&M Group and Inditex. H&M Group declined in writing, the foundation said it was unable to comment, and the Commission and Inditex left the questions unanswered.

The questions asked where H&M would produce less once resale became cheaper, what the signatories would commit to at the start of the chain on volume, on virgin fossil fibre and on durability, and whether their support would hold if resale grew large enough to replace new production.

The study touches on that last point itself. Where demand for clothing barely responds to price, it notes, cheaper resale may bring few extra sales, and revenue across the sector could fall.

In Brussels, the calendar is fixed. The consultation closes on 4 November and the Circular Economy Act follows on 18 November, after which member states have until June 2027 to turn producer responsibility for textiles into national law. The fees they set, garment by garment and fibre by fibre, will decide how much of the bill travels back to the field and the oil well.