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Next versus Treasury

Robert Peston | 08:23 UK time, Wednesday, 19 March 2008

This statement in Next’s annual-results announcement caught my eye this morning:

Shoppers outside Next“Trading conditions in the year ahead will continue to be difficult as increased costs and rising taxes put pressure on our customers.”

Or to put it another way, the chairman of Next, John Barton, seems to be heaping responsibility on the chancellor for the slowdown on the high street.

Now you may think there’s nothing terribly remarkable about that. After all, Next’s chief executive, Simon Wolfson, is matey with the new generation at the top of the Conservative party and there was a tax-raising Budget last week.

But the typical rule at publicly listed companies is that they don’t dump on the incumbent government for stewardship of the economy – usually because those companies think it’s sensible to be on reasonable terms with those who have the power. Cohabitation with ministers is unavoidable and shareholders get a bit antsy if that cohabitation becomes fractious.

There is an exception to that rule. If the prevailing wind becomes so strong against a ruling party, then businessmen often rediscover their critical voice.

So it will worry Gordon Brown and Alistair Darling that Next has piped up. And they’ll be fearful that other listed companies will join in the chorus of implicit criticism.

Also, Brown and Darling won’t welcome Guy Hands’s threat to relocate some of his Terra Firma private-equity operation abroad, which he made in today’s FT.

Hands believes that Darling’s changes to capital gains tax and the taxation of non-doms are damaging his industry.

But the political significance of Hands’s remarks is a little bit less than those of Next.

Privately owned businesses, like Terra Firma, have always found it easier to put the boot in to politicians.

They can say more-or-less what they like, because they’re not answerable to pension-fund shareholders and the millions of pensioners who depend on those funds.

By the way, Next’s shareholders might want to ask the retailers’ directors whether last year’s fall in sales at Next’s existing stores was all the fault of the government, or whether management shares some of the responsibility.

Comments   Post your comment

  • 1.
  • At 09:00 AM on 19 Mar 2008,
  • help me out here wrote:

So Guy Hands is threatening to take Terra Firma elsewhere in Europe. But don't I remember hearing that we were pretty unique among our international peers in our light touch approach to capital gains (indeed weren't the Treasury Select Committee egging the Government on to do something about private equity's capital gains last summer?) and non-doms?

So where is he going to take all his staff? Guernsey?

  • 2.
  • At 09:01 AM on 19 Mar 2008,
  • Andy wrote:

I was in my local Next over the weekend and left empty handed. The price for a lot of the goods on offer is getting a bit silly. Incidentally, most of the clothes bear tags along the lines of 'made in Malaysia, made in Taiwan, made in anywhere other than here in blighty'. So the blame for the prices is obviously the government then!! The old saying needs a revamp, "A bad workman blames his government".

  • 3.
  • At 10:21 AM on 19 Mar 2008,
  • Johno wrote:

help me out here,

Its easier than you think.
While basing funds in a tax haven, its still possible to have a UK staff compliment. Ever heard of the telephone or the internet?

You dont even actually need to have any staff members in Guernsey... just an administrator...

Bye bye tax dollars for Mr. Darling...

  • 4.
  • At 10:27 AM on 19 Mar 2008,
  • Tony wrote:

The problem facing a large fraction of the consumers today is that their bills have risen out of all proportion to their incomes, and at a rate whch makes the government's claim of two point something per cent inflation look facetious.
Many of us have virtually given up buying new clothes, and many of us won't even go into a shop unless there is a major sale on. My only exceptions are BHS and Primark, where I can get quality cheap.
Is this Next's fault? Insofar as they are buying cheap and selling dear, yes.
Is it the government's fault? Insofar as it's their fault my bills have risen so much, yes.

  • 5.
  • At 10:29 AM on 19 Mar 2008,
  • Scamp wrote:

Could someone please explain to me why I should have any sympathy for a podgy hedge fund boss when these nasty little organisations have done so little for UK Plc.

I'd like to see both hedge funds and private equity companies driven from our shores and banned from operating here ever again. Neither creates anything new... Bring back the old fashioned venture capitalist.. Give him/her buckets of tax relief but this time let them be run by people who actually understand technologies and markets and not beancounters with MBAs.

  • 6.
  • At 10:29 AM on 19 Mar 2008,
  • Pete wrote:

I think the comment about rising taxes is a matter of fact as much as anything else. The more the Government takes out of our pocket, the less people have to spend. The tax changes are directly down to the Government and things like train fare increases and part of the energy costs increases are a result of inefficient government regulation which have created markets in which companies are not truly competing. Council tax has also been rising heftily each year.

People are having to tighten their belts and cutting back on clothes is an easy thing to do. Most of us have far too many. That Next offers poor value for money means their profits are likely to be be hit harder than others but they're hardly going to do a 'Ratner', are they?

  • 7.
  • At 10:43 AM on 19 Mar 2008,
  • Nick wrote:

Isn't Guy Hands matey with William Hague? So of course he isn't unbiased. And has he by any chance been exploiting non dom status himself to keep his personal capital gains as far as possible safely offshore and untaxed?

  • 8.
  • At 10:47 AM on 19 Mar 2008,
  • Ruboid wrote:

If Next's target customers are primarily in their twenties and thirties then it would be more salient to blame a grossly inflated housing market than the government's tax regime. We might have to fork out a certain amount in taxes but we have to set aside alot more for the privilege of not being homeless.

Next are not really doing anything that their competitors are not, at least as far as men's clothes are concerned. Shopping on an English high street has become a dull exercise in choosing the least bland, generic item available. I think some of these organisations need to look to their buying before they blame the government for people's lack of appetite for spending.
If Next's target customers are primarily in their twenties and thirties

  • 9.
  • At 10:50 AM on 19 Mar 2008,
  • robert marshall wrote:

Accepting your comment that publically quoted companies see it as politically correct to play ball with the incumbent government.
That doesn't reduce the facts that under this government conditions for business have been made harder through increased red tape more complex employment laws and higher taxes. They have also generated a level of debt that is nothing short of obscene.
Small and private companies employ huge amounts of staff and its about time we all spoke up about the sham that is going on.
Lets get the real meassage of what is going on to all our staff and remove this government at the next election, which hopefully will be sooner rather than later.

  • 10.
  • At 11:05 AM on 19 Mar 2008,
  • Tony Bryer wrote:

Shareholders shouldn't need to ask questions: we all know that any increase in profits is down to the wisdom and flair of the management whilst any fall is the responsibility of the weather, the government, the date of Easter etc etc.

  • 11.
  • At 11:05 AM on 19 Mar 2008,
  • James wrote:

While it's true that private companies aren't answerable to shareholders in the same way as public companies, Terra Firma's a bad example in this case.

After all, most of Guy Hands' money comes from pension funds - so really he's just as answerable to them as Next is...

Great post Robert! Amazing what a small paragraph in such a bland, detailed document can reveal. Looking back, it seems like the winds of change first blew at the end of last summer. After the floods and foot/mouth, blue tongue and so on it seemed that that Brown was bullet-proof. He may have been, but Northern Rock went nuclear and he dithered. It's a fact that he dithered, because City types are proclaiming such all over the BBC at the moment!

I think we will now see the independence of our Old Lady sorely tested. How Brown must be pining for the powers of the US Fed right now. No drastic rate changes for us, thereby diluting our ability to ride out the approaching recession. You're right that retailers are partly to blame for their own trouble, but hey, a slight contraction keeps everyone on their toes, doesn't it? The worry must be that a recession/depression would be more severe than that, and the eventual answer will probably determine the result of the next General Election.

  • 13.
  • At 11:34 AM on 19 Mar 2008,
  • Neil Small wrote:

Perhaps if Next had factories in the UK it would help the economy. As for a private equity company, let them go where they want. All they look for is pure profit, regardless of how they get it.

But taxes are too high. People have less spare cash, therefore spend less in the shops. These shops makes losses and lay off staff, who in turn have less cash to spend on non-essential goods. There is a fine balance with tax levels, but these have been exceeded.

Perhaps Darling & Co could publish the true inflation figures.

  • 14.
  • At 11:35 AM on 19 Mar 2008,
  • Econ Watcher wrote:

Quite right Next.

Everytime that Brown/Darling add on a tax or an 'initiative', the results are for things that people can never see

eg 'we are raising taxes for child poverty' -

Ok we can all buy the 'child poverty' argument and that is worthwhile - but where are the results ?
Who benefits from this, where is the benefit, how is it measured, where are the results, what areas is this money spent in ?
Results -results - results are what count, not taxes raised followed by easy promises, spin, fudge and obfuscation.

Mind you who could trust Brown and Darling as economic stewards after they sold off the gold reserves at half price (now $1000 per oz). And what happened to that money anyway? show us the results.
Con men all who only know how to fiddle-faddle around, without an economic strategy that people can inspect.

Show the benefits or depart now. The time is up on these initiatives which add cost without benefit - think of the stunning Home Information Pack - another spend without benefit.
NewLab think 'em up as if there is no cost involved.

Gormless all of them.

  • 15.
  • At 11:42 AM on 19 Mar 2008,
  • michaelr wrote:

Not a strictly accurate summation of the Next statement. Next reort that rising costs AND taxes are impacting on their customers. In other words, taxes are no better than equal to rising costs and are perhaps, given the statement's exact wording, subordinate to rising costs. Thats hardly piling critiscm on the Chancellor.

  • 16.
  • At 11:53 AM on 19 Mar 2008,
  • stanilic wrote:

It is not fully apparent but there is a distinct slowing down in the retail mainstream.

Certain niche operators continue to do well and can expect the good times to continue. Good luck to them!

However, the direct evidence is that people are spending less. The reasons for this are varied but can be mainly laid at the door of significant increases in utility costs and a long-standing pattern of ever increasing taxation.

Furthermore, whilst I have no evidence to support this point, I also suspect that a relative decline in wages amongst the lower paid is causing some outlets a great deal of difficulty.

This government has been to the tax well far too often and now it is starting to dry up. There has to be an end to the constant demand for more money by this government as the cash is just not out there. The Treasury, like the banks, needs to learn the difference between cheap money and added value.

  • 17.
  • At 12:16 PM on 19 Mar 2008,
  • Robert MacRae wrote:

Expensive clothes cheaply made, that's their problem.

I was never able to justify buying something from them at full price.

Could the clamp down by the credit card companies have had something to do with Next's problems, do you think?

  • 19.
  • At 12:58 PM on 19 Mar 2008,
  • john Harvey wrote:

It's pretty obvious that if people have less income left over after paying tax and their bills, then they will spend less in the shops.

So in that respect, the government must share the blame for the slowdown in the economy as that have increased their take.

The governments general mishandling of the economy since 2000 has left them with no fiscal measures to help prevent a slowdown and their rigid inflation target for the Bank of England leaves them with no room to move on interest rates.

Unless something radical changes, it looks like we're heading for stagflation that could last for years.

  • 20.
  • At 01:04 PM on 19 Mar 2008,
  • Phil wrote:

I must be the only person in the uk looking forward to a 2p cut in income tax from April 2008. This cut in income tax will make for a tax reducing year not a tax raising year. Why is no one mentioning the 2p cut, only focussing on the increases.

Could the clamp down by the credit card companies have had something to do with Next's problems, do you think?

  • 22.
  • At 01:21 PM on 19 Mar 2008,
  • andrew wrote:

From the last budget, most of Next's target group (20 and 30 somethings) will be marginally better off - ie paying LESS tax.

The people marginally worse off due to taxes in the budget are so rich that they wouldn't be seen dead shopping in Next. Oh that would include millionaires like David Cameron and William Hague ...

  • 23.
  • At 01:57 PM on 19 Mar 2008,
  • LouiLoui wrote:

I'm happy to give 'Hands' a clap out of this country. Just make sure the door is closed behind him. Don't make the mistake that PE companies to anything for British Industry - or the economy. The cause of the Bear Stearns crash was because of their role as a prime brokerage to Hedge funds and PE companies who all suddenly requested their liquid assets at once. If you consider yourself poor - the rish man IS NOT YOUR FRIEND.

  • 24.
  • At 02:03 PM on 19 Mar 2008,
  • Sally D wrote:

At this time when incomes are having to cover rising mortgage and fuel bills clothing is once again seen as an investment. The day's of wear it then chuck it (Primark) are coming to an end and as such we want more for our money. The stock currently in stores are not offering value for money as well as a longer lasting look. In my opinion they are going the way of M&S ten years ago. They lack style and inspiration. As mentioned in a previous comment, the customer base they project to are finding it tough to splash out on fashion. A new strategy is required its not just a fault with the Govt.

  • 25.
  • At 02:36 PM on 19 Mar 2008,
  • Mike wrote:

When will the governemnt realise how big an effect increasing costs/taxes for consumers will impact on the high street.

And if i'm honest, the stock being bought for men at next this season is probably the best i've seen it, so let's take that out of consideration when looking at a slowdown in growth.

Retail is one of the UK's largest employment sectors and if revenue at retailers like next are not going to grow, then these companies will have to increase their profits somehow. And i'm sure that they squeeze out every last penny of profit they have! Then the only option left would be reducing staffing costs.

With this in mind, an increase in the minimum wage later this year wont help retailers. So to sum this up, can the government live with what will ultimatley happen-retailers causing redundences right accross the businesses?

  • 26.
  • At 02:50 PM on 19 Mar 2008,
  • Peter Wilshire wrote:

Come off it Robert.

I fully agree with post no. 14:

Next's statement is HARDLY 'heaping responsibility on the chancellor for the slowdown on the high street'.

It is merely stating facts:

FACT 1: Costs are going up. Both for retailers (higher minimum wage, business rates, heating etc.) and for customers (food inflation, heating, mortgage payments). Some of this is certainly down to the Chancellor, but some is also due to external pressures. Next makes no comment on who is to blame.

FACT 2: Taxes are going up. You only have to look at the last budget to know that. Sure, this is down to the current Chancellor - and his predecessor, Gordon the Gopher.

But it doesn't make Next's statement politically charged. Next is merely quoting FACTS.

Of course, there may well be other factors of their own making behind the trading slowdown. But it's unlikely the Chairman would dwell on these, however refreshing his frankness would be!

To my mind, this article is another example of Robert Peston reading too much into things.

  • 27.
  • At 03:12 PM on 19 Mar 2008,
  • Michael wrote:

When will the governemnt realise how big an effect increasing costs/taxes for consumers will impact on the high street.

And if i'm honest, the stock being bought for men at next this season is probably the best i've seen it, so let's take that out of consideration when looking at a slowdown in growth.

Retail is one of the UK's largest employment sectors and if revenue at retailers like next are not going to grow, then these companies will have to increase their profits somehow. And i'm sure that they squeeze out every last penny of profit they have! Then the only option left would be reducing staffing costs.

With this in mind, an increase in the minimum wage later this year wont help retailers. So to sum this up, can the government live with what will ultimatley happen-retailers causing redundences right accross the businesses?

  • 28.
  • At 03:39 PM on 19 Mar 2008,
  • SARA wrote:

Next clothes are boring mumsy tat. And way overpriced.

How they are still in business is beyond me.

  • 29.
  • At 04:54 PM on 19 Mar 2008,
  • Ch. Honthorst wrote:

The reference to 'increased costs' suggests that potential customers are being inhibited by actual cost of living increases. For several years these have massively outstripped government defined 'inflation'. What Mr King wittily considers to be 'boring' items (eg food) are for others necessities that no amount of substitution bias can help them to dodge.

  • 30.
  • At 06:54 PM on 19 Mar 2008,
  • robert marshall wrote:

It seems somewhat ironic that banks are going to the Bank of England when we have a leading stock market who's sole function is to raise funds.
Let them all offer deep discounted rights issues and see the stock taken up quickly. When there are bargains to be had we all find the money. If the bears clean up, thats teh way teh cookie crumbles!.
My worry is what damage is happening to our Insurance companies and life funds, where have they put our money how solvent are they and why are they so quiet now?

Like most of the high street, Next is suffering. Obviously the directors will want to have someone to blame but I think it is a bit rich blaming the government now. These people are paid substantial salaries to plan for times like these. It isnt news that the high street is suffering. It has been predicted for quite some time. There was talk of this before last christmas.
In our blame culture it is always someone else's fault

  • 32.
  • At 01:33 PM on 20 Mar 2008,
  • Peter Roberts wrote:

"So at a time of high anxiety in financial markets, all banks are - in a sense - on the brink of insolvency."

Classic Pesky Peston!

Peston seems to enjoy the current
difficulties Banks & all of us find ourselves in.
Personally I think he was largely responsible for the downfall of
Northern rock & he should act more responsibly and be less of a scaremonger after all it's all about
confidence and trust and he should remember that in his reports.

  • 33.
  • At 07:53 PM on 26 Mar 2008,
  • David Brookes wrote:

Having just experienced the Next Directory online shopping service for the first (and last) time I think that Next's Chairman and Chief Executive should recall the adage 'Those that live in glass houses should not throw stones'. Shareholders should be more concerned that the slow-down arises simply from providing woeful customer service.

Please don't misinterpret this as support for the Chancellor. I'll save that rant for another day!

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