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UK faces years of ‘anaemic’ growth amid tax and regulation burden, says Next UK faces years of anaemic growth amid tax and regulation burden, says Next
(about 4 hours later)
Retailer says economic outlook clouded by declining job opportunities, government overspending and red tape Retailer says economic outlook clouded by fall in job opportunities and government overspending
Bosses at the clothing and homeware chain Next are forecasting years of “anaemic growth” across the UK as the retailer claims that regulation, government spending and higher taxes would hurt jobs and productivity. Bosses at the clothing and homeware chain Next are forecasting years of “anaemic” growth across the UK, with the retailer claiming that regulation, government spending and higher taxes will hurt jobs and productivity.
The FTSE 100 company, which is headed by the Conservative peer Simon Wolfson, said that while it did not believe the economy was heading towards a “cliff edge”, the weakening outlook gave the company “another reason to be cautious”.The FTSE 100 company, which is headed by the Conservative peer Simon Wolfson, said that while it did not believe the economy was heading towards a “cliff edge”, the weakening outlook gave the company “another reason to be cautious”.
Next’s half-year earnings report said: “The medium- to long-term outlook for the UK economy does not look favourable. To be clear, we do not believe the UK economy is approaching a cliff edge. “The medium- to long-term outlook for the UK economy does not look favourable,” the retailer said as it released its results for the six months to July.
“At best we expect anaemic growth, with progress constrained by four factors: declining job opportunities; new regulation that erodes competitiveness; government spending commitments that are beyond its means; and a rising tax burden that undermines national productivity.” The company, which sells its own-brand clothes and homeware alongside other brands’ products, and controls the UK distribution of the US brands Gap and Victoria’s Secret, said the rising tax burden and government spending commitments, among other factors, were putting pressure on businesses and restricting economic growth.
Shares tumbled by 6% in early trading on Thursday, making Next the biggest faller on the FTSE 100. “At best we expect anaemic growth, with progress constrained by four factors: declining job opportunities, new regulation that erodes competitiveness, government spending commitments that are beyond its means, and a rising tax burden that undermines national productivity,” it said.
The warning came as the company announced it would hand a further £99m to its shareholders, via a dividend worth 87p per share. It followed a near-18% jump in half-year pre-tax profits to £509m, on a statutory basis, as sales in the six months to July rose by 10.3% to £3.3bn. Shares in Next tumbled by as much as 6% on Thursday before recovering slightly, making it the biggest faller on the FTSE 100, despite unveiling a robust set of results.
Next said: “Our enthusiasm is tempered by the knowledge that the first half was boosted by factors that are unlikely to continue and the belief that the UK economy is likely to weaken going forward.” The company said it benefited from warm weather in the spring and early summer, as well the disruption at its competitor Marks & Spencer following a major cyber-attack, as shoppers tended to buy fewer, better-quality items.
Next and Lord Wolfson have been strong critics of the government’s decision to raise employers’ national insurance contributions during last year’s autumn budget. They are now hitting out at the pending employment rights bill, which is expected to ban zero-hours contracts, end fire-and-rehire practices, and entitle workers to sick pay from their first day on the job. Job vacancies at Next have fallen by more than a third (35%) compared with two years ago as a result of better staff retention. Applications for roles have increased by 76% over the same period.
The bill returned to the Commons this week with a pledge by senior government figures not to water down changes, despite the exit of its champion Angela Rayner, who quit as deputy prime minister earlier this month. “We would like all our great people to stay with us for as long as possible, so to that extent it’s a good thing, but I think it is also indicative of the bigger picture which is the fall in vacancies across the UK,” Lord Wolfson told journalists.
Next said on Thursday that while it welcomed “well-intentioned” reforms in the bill, it believed many measures would have “the unintended consequence of reducing jobs and eliminating earnings potential”. It added that while it never used zero-hours contracts, the bill may curb “low-hour” contracts for many workers “depriving them of the ability to volunteer for extra hours of work when it suits them”. He said the rise in use of automation and artificial intelligence would reduce costs and increase productivity across a range of industries but would also reduce the number of entry-level roles.
“My guess is that the effect is going to be felt most by those seeking to enter the workforce or move jobs, rather than those who are already in employment,” Wolfson said.
The company’s warning about the economic outlook came as it revealed that it would hand a further £99m to its shareholders via a dividend worth 87p a share. It reported a near 18% jump in half-year pre-tax profits to £509m, on a statutory basis, as sales in the six months to July rose by 10.3% to £3.3bn.
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Overall, the retailer said entry-level employees were facing the “triple pressure of rising costs, increasing regulation, and displacement through mechanisation and AI”. Next and its chief executive have been strong critics of the government’s decision to raise employers’ national insurance contributions in last year’s autumn budget.
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown said that Next was “clearly unimpressed by the current government’s performance”. Wolfson hit out on Thursday at the employment rights bill, which returned to the Commons this week and which is expected to ban zero-hours contracts, end fire-and-rehire practices and entitle workers to sick pay from their first day on the job.
However, Next still “breezed past its original sales guidance over the first half, driven by favourable weather, major disruption at M&S and impressive international growth. In the UK, both online and in-store full-price sales grew at mid-to-high single digits.” He told reporters that the bill could prevent Next from offering extra hours to its part-time staff, including students and parents during the festive season and other busy periods, depending on how ministers define “low-hour” contracts.
As well as the Next high street chain, the group also controls the UK distribution of the US brands Gap and Victoria’s Secret, creates Laura Ashley homeware, Ted Baker childrenswear and lingerie, and sells dozens of other brands it does not own via its website. “Hopefully the government will set the number at a reasonable level,” Wolfson said. “If they do, they will achieve their aims of eliminating the abuses of zero-hour contracts without having an adverse impact on flexible working. If that number is set too high, it will be bad for service and bad for employees.”
Despite the gloomy forecasts and share slide, analysts at the broker Peel Hunt said it was a strong six months for Next, with upgrades each quarter. “While Next has reservations on the underlying UK economy and the challenges facing retailers, there is also an increasing confidence on the group’s growth potential and execution,” they said.