Marks & Spencer has warned it cannot rule out a price increase after absorbing a further £120 million in costs following Chancellor Rachel Reeves’ National Insurance (NI) changes and upcoming pay rises.
Chief executive Stuart Machin said the retailer would do “everything we can” to avoid these costs being passed on to customers, but acknowledged the company faces “quite significant costs that need to be contained”.
M&S expects its tax bill to rise by £60 million next year to around £520 million, following the Chancellor’s decision to increase employer contributions by 1.2 percentage points to 15% from April, in addition to lowering the threshold at which firms start paying.
Mr. Machin noted: “We planned it [for an increase] because it was known before the budget that there would be an increase in national insurance for businesses. We didn’t quite see the double whammy coming.”
In addition to the higher costs resulting from the NI changes, M&S expects a further increase in labor costs of £60 million as a result of the minimum wage increase – a cost that the retailer had already taken into account.
Mr Machin said M&S would work “incredibly hard” to cut spending elsewhere to avoid price rises for customers, noting there are currently no plans to increase prices. He highlighted the company’s “good track record” of finding cost savings.
The warning comes amid warnings from retailers of an “avalanche of costs” as a result of the budget. Analysts suggest the NI changes alone could add between £550m and £600m to UK grocers’ costs.
Earlier this week, Primark’s owner said he would explore options, such as introducing self-checkouts, to reduce labor costs.
The budget has also led to broader discontent among businesses. Recent figures show two-thirds of bosses are negative about the budget, while the same proportion believe Ms Reeves’ measures are not supporting growth, a survey by the Institute of Directors has found.
Machin’s cautionary comments coincided with M&S shares hitting their highest level since 2016 after the company reported a 17% rise in pre-tax profits and adjusted items to £408m for the six months ended September 30, exceeding analyst expectations of £360 million.
M&S shares rose as much as 7.4% on Wednesday morning.
The strong results are seen as evidence that Machin’s turnaround strategy for the retailer is on track, with both its food and apparel divisions showing growth over the six-month period.
Expressing his optimism for the upcoming Christmas period, Mr Machin cited M&S research showing that customers plan to spend more this year than last.