London Restaurant Owners Pivot to Gulf Markets Amidst Domestic Tax Concerns

A growing number of London’s top-tier dining establishments are establishing operations in the Gulf, driven by what one co-owner describes as a domestic tax surge and a superior work culture abroad.

James Robson, co-owner of Fallow in St James's Market, recently finalized an agreement to open a branch in the region. Fallow is currently considered the capital's most popular restaurant, serving approximately 1,000 guests daily. The venue gained widespread recognition through social media, where it maintains 650,000 followers, and through distinctive menu items like a whole cod's head served in a spicy butter sauce. Robson is not alone in this strategic shift. Scott's of Mayfair, a well-known celebrity destination, has already opened in Dubai. The two Michelin-starred Indian restaurant Gymkhana and the upscale Chinese venue Park Chinois have also expanded there. Additionally, the Borough Market bakery Bread Ahead has branched out to Dubai, while Isabel's, a long-standing Mayfair institution frequented by politicians, has opened in Abu Dhabi.

These expansions proceed despite recent geopolitical instability in the Middle East. Earlier this year, the US-Israeli war in Iran resulted in bombardment of Dubai and triggered an exodus of expatriates. The hospitality sector has felt the impact, with some venues still recovering. Dinner by Heston has remained temporarily closed since the conflict's fallout. The Michelin guide also faced criticism earlier this month for listing 16 restaurants that were permanently or temporarily closed. This error reportedly occurred because some inspections were conducted at the start of the year, prior to the outbreak of war.

Speaking from Hong Kong, where he is evaluating opportunities in Asia, Robson identified East Asia, the United States, and the Gulf as primary targets for growth. He noted that America champions business, the Gulf actively encourages and assists entrepreneurs, and East Asia possesses a work ethic and tax system that he believes puts the UK to shame.

A central grievance among these operators is the hospitality VAT rate. The UK imposes a 20% tax, which ranks among the highest in Europe, where the average for restaurants is approximately 12%. Italy, for comparison, charges 10% on food sold in dining establishments. Chefs are urging Chancellor Andy Burnham to reduce this rate in next week's budget. Robson stated that the country has sleepwalked into multiple anti-growth taxations over the last two budgets and anticipates further changes next week. He also highlighted the 25% corporation tax and dividend taxes of 40% or more, arguing that VAT should be brought closer to European levels.

Michelin-starred chef Jason Atherton now spends a third of his time at his Dubai restaurant. He reports that it is easier to generate a profit abroad than in London. Robson expressed that he does not resent paying UK tax and takes pride in contributing to the country's deficit. However, he argued that UK growth no longer offers a sensible balance of risk and reward. Consequently, he is playing it safe at home while focusing his expansion efforts overseas.

Human rights advocates are urging caution regarding this expansion. Felix Jakens, Amnesty International UK's director of campaigns, pointed out that the UAE has a poor record on workers' rights and protection from labor exploitation. He noted that the country's heavy investment in its UK image, particularly through its sponsorship of Manchester City, should not obscure how workers are treated. Jakens emphasized that migrant workers, who constitute the majority of the UAE's population, remain bound by a sponsorship system that ties them to their employers and exposes them to potential abuse. These workers are also denied the right to form trade unions.

Jakens argued that any UK business expanding into the Gulf must conduct thorough human rights due diligence. This ensures that kitchen staff are treated fairly, paid properly, and able to raise concerns without fear of losing their job or visa.

As these high-profile brands move their operations to the Middle East, the move reflects a broader trend of seeking favorable regulatory environments for free enterprise. While the Gulf offers lower tax burdens and active support for business growth, it also presents challenges regarding labor rights. The success of these new branches will depend on their ability to maintain quality standards while navigating the complexities of local labor laws and geopolitical conditions.