Next chief says national living wage could drive up inflation

Lord Wolfson, the chief executive of Next, has warned that the “national living wage” will cost the clothing retailer £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 per cent, reports The Guardian.

The comments from Lord Wolfson follow a string of warnings from other companies about the impact of the national living wage. 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, while Manpower, the recruiter, 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.

Lord Wolfson intervened in the debate as Next posted half-year results. The high street retailer said sales rose 2.7 per cent to £1.9bn in the six months to July, with pre-tax profits up 7.1 per cent to £347m.

Next’s pay rate for adult starters is £7.04. Lord Wolfson said £100m of the company’s £600m wage bill relate to workers who will qualify for the national living wage. The cost to the company of increasing pay to hit the new rate is “not immaterial but, in the context of Next’s wider cost base, is not transformative”, the Next boss stated.

Lord Wolfson added: “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 cent 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 cent per annum. In order for the LWP to hit £9 per hour in 2020, inflation in the median wage needs to be 3.5 per cent. If, however, wage inflation runs below 3.5 per cent then achieving £9 in 2020 may be problematic, as it would mean raising the LWP above 60 per cent 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.”