Next blames clothes price rises on Budget wage costs

Next has announced that it will raise prices on some clothing to offset "an unusually high" £73m increase in staff wages and taxes.

The High Street retailer said that costs will grow due to measures announced in the autumn Budget, including higher National Insurance payments by employers as well as an increase in the National Living Wage.

Next expects prices to increase by 1%, which is below the current rate of inflation.

More than half of companies are planning to lift prices over the next three months to help with higher costs, the British Chambers of Commerce business group said this week.

Next said the price rise - which will offset around £13m in wage and tax costs - was "unwelcome". The retailer's current annual wage bill is around £900m.

The company was one of a group of large retailers including Tesco, Amazon and Greggs who wrote to Chancellor Rachel Reeves in November warning of price rises and job losses due to Labour's Budget measures.

The Office for Budget Responsibility, the independent forecaster, said last year that the majority of the increase in National Insurance Contributions by employers will be passed on by a squeeze on worker pay rises and increased prices.

But at the time, Reeves said she had "decided the right thing to do was to ask businesses and the wealthiest in our country to pay a bit more".

Next expects profits to rise by 3.6% to more than £1bn next year.

Labour claimed that it inherited a £22bn "blackhole" from the previous Conservative government.

In its final months in office, the Tories cut workers' National Insurance payments by 4% in total, at a cost of around £20bn.

In her Budget Reeves announced that employers' National Insurance contributions would rise from 13.8% to 15% from April this year.

She also confirmed that the National Living Wage would increase from £11.44 to £12.21 an hour, again from April.

Next's price increase will only be on certain items of clothing.

But it said it said UK growth "is likely to slow, as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy".

The company also said that shoppers have continued to shift what they spend their money on. Instead of buying cheaper items, they are choosing mid to higher priced items.

"To be clear, consumers are not necessarily spending more overall, but buying fewer, marginally more expensive items," it said in a Christmas trading update.

"We believe that this trend will continue into next year."

Richard Lim, chief executive of Retail Economics, said there were "challenging conditions on the High Street".

He said retailers had seen "successive waves of disruption" and rising costs would "really squeeze margins".

Next is the first major retailer to give an update on Christmas trading, ahead of the likes of Tesco, Sainsbury's and Marks and Spencer later this week.

For the nine weeks to 28 December, Next said sales rose by 6% but online trade outstripped its physical stores.

Next said UK online sales rose by 6.1% but in-store the company recorded a 2.1% drop.