Next warns against growth-‘stifling’ tax rises in Budget

Retail giant Next has warned against tax increases in next month’s Budget as it said consumers were already under mounting pressure from Iran war inflation and a weak jobs market.

In its first-half results, Next cut its outlook for UK sales growth in the final six months from 2.8% to 2% as it flagged concerns over the impacts on consumer spending from the rising cost of living, higher mortgage costs and a cooling labour market.

Chief executive Lord Simon Wolfson said: “These worries will only be compounded if they are accompanied by tax increases.”

He added: “The tax burden is at its highest level for over 60 years and seems to us to be at the point where further increases only risk stifling growth – and lower growth is likely to only worsen Government finances – a vicious circle.

“In our view, the best outcome for UK growth would be a credible plan to get Government spending under control – eliminating the fear of higher taxes – alongside supply side measures to boost growth.”

He told the Press Association the Government had “very little room for manoeuvre” and was unlikely to be able to afford further measures to ease cost-of-living pressures, given already creaking public finances.

“We’re not talking about a collapse in consumer spending, but the cost of living pressures from energy that are coming through will inevitably put downward pressure on that,” he told PA.

Next raised prices in the UK by between 1% and 2% over the first half and is expected to maintain increases at the same level for the year as a whole and into early 2027.

Lord Wolfson said the reduction in tariffs on goods from India had helped by boosting competition among clothing suppliers and offset rising costs for fuel, energy and labour.

“We’re not seeing significant price inflation on the goods we’re buying for spring and summer next year,” he said.

The comments came as Next delivered yet another profit upgrade after half-year trading was “much better” than expected in the UK and its overseas, with British sales boosted by the record hot summer.

It saw half-year UK full price sales rise 3.6%, with 7.4% growth online offsetting a 1.7% drop in stores, while international online sales jumped 23.9% despite price rises in some markets amid the Middle East conflict.

This helped underlying pre-tax profits rise 10.5% to £569 million in the six months to July.

Statutory pre-tax profits lifted 11.2% to £566 million.

Next now expects full-year profits to rise by 8% to £1.23 billion and sales to increase 6.7%, up from growth of 7.3% and 6.3% previously expected respectively.

Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said: “In the UK, hotter-than-expected weather and more effective marketing saw customers logging in to refresh their summer wardrobes online, helping offset a small decline in-store.

“But international markets were the biggest contributor to top-line growth, fuelled by pent-up demand in the Middle East and Northern Europe.”

He added: “Next is set to lap a tough comparable period in the second half, and concerns about rising inflation and weaker employment in the UK have seen sales guidance here wound back a touch.

“We view this outlook as overly cautious given that Next’s sales are skewed towards middle-class and middle-aged consumers, who are likely to remain relatively resilient even if conditions deteriorate over the rest of the year.”