Next’s chief executive, Lord Wolfson, has said the “national living wage” will cost the company £27m a year until the end of the decade and risks creating a potentially harmful inflationary loop.
Wolfson, a Conservative peer and friend of George Osborne, said Next will have to raise prices to offset the cost of implementing the national living wage, although the increase could be as little as 1%.
His comments are the latest in a series from other companies about the impact of the measure. Whitbread, the owner of Costa Coffee and Premier Inn, has said it will look at “selective” price rises to offset the cost of the new pay rate, and the recruiter Manpower said it has sent shockwaves through the labour market.
Under the chancellor’s plans, the minimum wage for over-25s will increase from £6.50 an hour at present to £7.20 in April next year, before rising to at least £9 by 2020.
Wolfson made his comments as Next posted half-year results. The company said sales had risen 2.7% to £1.9bn in the six months to July, with pre-tax profits up 7.1% to £347m.
Next’s pay rate for adult starters is £7.04. Wolfson said workers who will qualify for the national living wage account for £100m of the company’s £600m wage bill. The cost to the company of incorporating is “not immaterial but, in the context of Next’s wider cost base, is not transformative”, he said.
“In summary, as long as the LWP [national living wage] is linked to 60% of the median wage, we believe that the burden is manageable. The resulting price increases are also likely to be affordable in the context of forecast general wage inflation of 4.5% per annum.
“There is an uncertainty as to what will happen in the event that median wage inflation is lower than the forecast 4.5% per annum. In order for the LWP to hit £9 per hour in 2020, inflation in the median wage needs to be 3.5%. If, however, wage inflation runs below 3.5% then achieving £9 in 2020 may be problematic, as it would mean raising the LWP above 60% of the median wage.
“Such a move would mean that maintaining reasonable wage differentials would be likely to move the median level itself, creating a potentially harmful inflationary loop.”
