High Street fashion giant warns prices will rise for shoppers after tax raid
A HIGH street fashion giant has warned that prices will rise as a result of Rachel Reeves’ tax raid.
Next anticipates a £67million increase in wage costs by January 2026 due to the planned rise in employer National Insurance contributions and the minimum wage, set to take effect in April.
As a result, the retailer said it will need to push through an “unwelcome” 1% rise in prices as part of efforts to offset the hit.
Next also warned that sales growth will pull back sharply over the year ahead “as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy”.
It came as the firm reported a better than expected 5.7% rise in underlying full-price sales for its fourth quarter so far, and upped its full-year pre-tax profit outlook once again, pencilling in a 10% jump to £1.01billion.
But over the new financial year to January 2026, it expects sales growth to slow to 3.5% and for group profits to increase by a more muted 3.6% to £1.05billion.
It is the latest retail business to indicate that some shoppers will see a knock-on effect from increases to business National Insurance contributions (NICs) and an increase in the National Living Wage.
Employers currently pay NICs for most workers earning more than £9,100 a year.
The sum they pay is the equivalent of 13.8% of the employee’s earnings above that threshold.
For an employee earning £30,000, for example, the employer would pay NICs of £2,884.20.
But in the Budget, the government announced it would increase the tax rate to 15% and reduce the threshold at which firms must pay to £5,000.
The British Retail Consortium has predicted that these changes will create a £2.3billion bill for the sector.
At the same time, the minimum wage will rise to £12.21 an hour next year, and the minimum wage for people aged 18-20 will rise to £10 an hour, an increase of £1.40.
Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, said: “Next has warned it will need to put up prices in the year ahead.
“Many other retailers are likely to follow suit.
“This is likely to add to inflationary pressures and could encourage consumers to tighten their belts in 2025.
“Overall, the UK retail sector sits between a rock and a hard place. Costs are going up, margins are likely to come down and consumers face an inflationary squeeze.
“Next though is well placed to weather the storm. If any retailer can thrive in this environment, it’s probably them.”
Next isn’t the only retailer taking a hit by the changes.
New Look is expected to ramp up a store closures programme ahead of April’s National Insurance hike.
RETAIL PAIN IN 2025
THE Centre for Retail Research (CRR) has also warned that around 17,350 retail sites are expected to shut down this year.
It comes on the back of a tough 2024 when 13,000 shops closed their doors for good, already a 28% increase on the previous year.
Professor Joshua Bamfield, director of the CRR said: “The results for 2024 show that although the outcomes for store closures overall were not as poor as in either 2020 or 2022, they are still disconcerting, with worse set to come in 2025.”
It comes after almost 170,000 retail workers lost their jobs in 2024.
End-of-year figures compiled by the Centre for Retail Research showed the number of job losses spiked amid the collapse of major chains such as Homebase and Ted Baker.
It said its latest analysis showed that a total of 169,395 retail jobs were lost in the 2024 calendar year to date.
This was up 49,990 – an increase of 41.9% – compared with 2023.
It is the highest annual reading since more than 200,000 jobs were lost in 2020 in the aftermath of the COVID-19 pandemic, which forced retailers to shut their stores during lockdowns.
The centre said 38 major retailers went into administration in 2024, including household names such as Lloyds Pharmacy, Homebase, The Body Shop, Carpetright and Ted Baker.
Around a third of all retail job losses in 2024, 33% or 55,914 in total, resulted from administrations.
Experts have said small high street shops could face a particularly challenging 2025 because of Budget tax and wage changes.
Professor Bamfield has warned of a bleak outlook for 2025, predicting that as many as 202,000 jobs could be lost in the sector.
“By increasing both the costs of running stores and the costs on each consumer’s household it is highly likely that we will see retail job losses eclipse the height of the pandemic in 2020.”
OTHER BUSINESSES TAKING A HIT
More than 70 businesses, including Tesco, Asda and Sainsbury’s, have told Rachel Reeves in an open letter that the changes announced in the Autumn Budget mean price hikes are a “certainty”.
The changes come into effect next April.
So far, retailers including Greggs, Toby Carvery owner Mitchells and Butler and Wetherspoon have all warned of price rises.
Here, we have listed all the retailers warning of price rises following Labour’s Budget tax raid.
Greggs
Roisin Currie, chief executive at Greggs, said the measures rolled out in the Autumn Statement would put pressure on prices, though is likely to be only “pennies”.
On average, Greggs customers spend £4 at its stores, and this is forecast to rise marginally.
It comes despite Currie promising there were “no plans” for further price increases this year after bumping the price of its sausage roll in July,
Over the summer, Greggs confirmed the price of its much-loved pastry snack and its vegan alternative had risen by 5p to £1.25.
She said the move was necessary at the time after experiencing a rise in costs from having to pay a higher national living wage for its 32,000-strong workforce.
Mitchells & Butlers (M&B)
All Bar One owner Mitchells & Butlers (M&B) told The Sun the price of pints could rise by between 10p and 15p.
The group, which also owns brands including Toby Carvery, said higher wage expenses are “by far the most significant increase” in its cost base following moves announced in the Autumn Budget.
Chief executive Phil Urban said M&B is facing around £23million a year in extra costs from the rise in national insurance contributions alone, with the increase in the minimum wage also sending its wage bill surging.
In total, its costs will rise by around 5%, or £100million, in 2024-25.
Mr Urban said the group’s prices would likely increase as part of efforts to mitigate the extra expenses.
Halfords
Halfords has warned that it may need to push up prices at its repair garages.
The retailer has more than 12,000 employees so the Budget changes will send its wage bill soaring by around £23million.
It said only around £9million of the extra costs were already included in its plans for 2025-26 and mitigated.
As a result it may need to “pass through” the higher cost of wages to customers across its garages.
The group said it would be difficult to reduce the impact of a one year cost increase of this size.
But Graham Stapleton, chief executive of Halfords, said that the retailer will “work hard to mitigate these costs”.
He added: “The cost implications from the recent UK Budget are particularly acute for a specialist retailer that provides expert advice and assistance to customers, face to face.”
Royal Mail
Royal Mail has warned that stamp prices could rise again after the Budget hit.
The boss of the postal service said hiking fees — just a month after the latest rise — was a possibility as it faces an enormous burden of extra costs.
Martin Seidenberg, chief exec of International Distribution Services, said: “We are looking at all measures including pricing, parcel cost efficiencies, investment plans, auto- mation and our parcel network.
“I cannot rule out [increasing stamp prices] but we will look at not just consumer letters but also business mail and parcels.”
The cost of a first class stamps went up by 30p to £1.65 last month, while second class stayed at 85p.
Wetherspoons
Wetherspoons boss Tim Martin has also warned of price rises.
The pub chairman said it would aim to stay competitive on customer costs but that all hospitality businesses faced the same pressures.
The chain’s tax bill is expected to rise by two-thirds next year after the Chancellor announced a hike in the national insurance for employers.
Martin said: “Cost inflation, which had surged to high levels in 2022, gradually diminished over the subsequent two years.
“However, it has now significantly increased again following the budget.
“All hospitality businesses, we believe, plan to increase prices, as a result.
“Wetherspoon will, as always, make every attempt to stay as competitive as possible.”
Wetherspoons anticipates that tax and business costs will increase by approximately £60million over the next year, including an estimated 67% rise in national insurance contributions.
Sainsbury’s
Simon Roberts, chief executive of Sainsbury’s, said the National Insurance hike would cost it £140million and warned that shoppers will face higher food prices.
Mr Roberts said: “It will lead to inflation and it’s pretty clear it’s going to come pretty fast.
“Given the low margins of the industry, there isn’t the capacity to absorb this level of unexpected cost inflation.”
AO World
The boss of online electricals retailer AO World has warned about price rises to offset more than £8 million in extra wage costs.
AO World estimates its wage bill will go up by around £4million due to the increase in NICs and about another £4million with next April’s minimum wage rise.
Founder and chief executive John Roberts said the group is likely to have to raise prices and make savings to mitigate the impact.
He confirmed “some of it will go into prices” but said it is too early to say by how much.
He stressed that the group would also look to use growth and efficiencies to counter the blow.
“This whole Budget is extremely inflationary for retailers,” he said.
“Is anyone naive enough to think that will not follow into pricing?
“From our point of view, it’s not about cost savings and taking headcount out; it’s about how we drive efficiencies and grow as a business.”