Rises in both the minimum wage and National Insurance paid by employers will cost M&S £120m, according to the retailer’s chief executive.
Stuart Machin said “we don’t want to pass on these costs to our customers” through price rises but “I can’t rule anything out”.
He said the changes announced in last week’s budget by Chancellor Rachel Reeves would cost M&S £60m extra in tax through National Insurance payments and about another £60m in increased wages.
Wage increases had already been planned for in M&S’s three-year forecasts, and were seen by the retailer as a “good cost”, he said. But “the challenge comes when all of these things add up”, he added.
“Because when you add up, as a total business, National Insurance increases of £60m, wage increases of £60m – or whatever it may end up being – and you add that to the fact there is no business rates reform where we thought there would be, of course it gives you pretty significant costs to mitigate.”
Reeves used her first budget to increase the rate of Employer National Insurance from next April by 1.2 percentage points to 15%. The threshold at which employers become liable to pay National Insurance on each employee’s salary also reduced, from £9,100 per year to £5,000 per year.
Meanwhile the National Living Wage will rise from £11.44 an hour to £12.21.
Having made a pre-election manifesto pledge to replace business rates, Labour’s first budget pushed reforming the tax system to 2026, while increasing the standard rate from next year to reflect inflation. The government has also indicated that reform from 2026 will include larger businesses paying a higher rate to fund lower rates for smaller ones.
Speaking as M&S announced its half-year results this morning, Machin said the retailer had expected National Insurance to rise but “we didn’t quite see the double whammy coming up”.
“We knew there would be an increase. We didn’t quite realise the threshold as well as the increase would impact us.”
“We were hoping for some good news on business rates,” he added.
“Retail is 5% of the economy and pays 21% of rates. If you look at last year, we paid £170 million. So, although there was some recognition that retail and hospitality should pay less, I was disappointed that it’s unclear what that will be, or its impacts, and that it’s been kicked into 2026.
“Likewise, there was nothing about the apprenticeship levy reform, which again I thought there would have been.”
On the government’s suggestion of increasing rates for large businesses from 2026 to fund lower rates for smaller ones, which it set out in a discussion paper published alongside the budget, Machin said it was “too early” to take a position.
“I think it’s something I’ll have to update everyone on at the capital markets day [on 12 November]. I need to see what the detail really says.”
He said M&S was “definitely not planning to increase prices” and would instead seek to reduce costs through efficiencies.
“We’ve done a good job in food in the last few years and we’ve done a very good job of holding prices in clothing and home. And I want to keep this strong value perception because it’s the best it’s been in a decade and we don’t want to jeopardise that.
“But it puts us under pressure and that’s why we’ve got to be really clear on our cost reduction programme.”
He said M&S had “big cost-out opportunities” including investing in technology and modernising distribution centres.
“We haven’t got all the answers [on cost savings] as I sit here today,” he said. “We’ll be working on this for the next few months.”
M&S’s pre-tax profits surged 17% to £408m year on year in the six months to 28 September 2024.
In food, sales were up by 8.1% while adjusted operating profit climbed from £158.4m to £213.1m.
Losses from M&S’s joint venture with Ocado shrank from £23.4m to £16.0m.
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