Credit: Betty Longbottom/Geograph

How will the living wage affect Next?

One of Britain's leading high street retailers opens up about the impact of next year's wage hike.

by Adam Gale
Last Updated: 21 Dec 2015

Next is widely regarded as a bell-weather for the UK high street, so when it delivers good news it’s normally well received. Today, it gave economy-watchers something to smile about – pre-tax profits rose 7.1% to £347.1m for the 6 months to July on the back of strong online performance, which lifted overall sales 2.7% to £1.9bn.

Of greater interest though was the firm’s decision to weigh in on the debate about the National Living Wage (NLW), which will raise the base level for over-25s to £7.20 next year. Some retailers, such as Whitbread, have warned of 'substantially' higher costs and possibly job losses, while others, such as retailers Oliver Bonas and Ikea, have gone further and signed up to the £7.85 figure calculated by the Living Wage Foundation.

Next said that the immediate impact of the NLW to its business would be fairly low. One fifth of its wage £500m annual wage bill goes to those who qualify for the NLW (its adult starter salary is currently £7.04 an hour). The increase would therefore add approximately £2m to its £500m annual wage bill next year.

In part, Next said, the figure is so modest because the simultaneous rolling back of the Working Tax Credit will push low-end wages up anyway. As it will affect all retailers more or less the same, ‘it is therefore unlikely to affect the competitiveness of any individual business’, Next said.

The bill from the NLW would rise to £27m by 2020 as it rises above expected general wage inflation, the majority of that cost coming from knock-on effects on higher-paid employees’ wages. Though that’s ‘not immaterial’, it does pale in comparison with the £120m annual wage bill increase Next expects from general wage inflation by 2020.

‘As long as [the NLW] is linked to 60% of the median wage, we believe that the burden is manageable,’ the retailer said. It does expect prices to rise 6% as a result of the combined effects of these wage rises, but isn’t too fussed so long as shoppers’ real spending power continues to increase.

The retailer, which employs close to 50,000 people, didn’t say whether it expected to hire fewer workers as a result of its higher wage bill, but its nonchalance does appear to take some steam from the doomsayer’s engine.

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