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Next will slash prices and save £25m under a no-deal Brexit

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·Finance and policy reporter
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  • NXT.L
File photo dated 29/05/18 of a branch of Next. The store's sales surged in the past three months as the high street fashion brand was buoyed by warm weather over the Easter period and online sales.
Next says it will benefit from the government's no-deal Brexit tariff regime. Photo: PA

The retailer Next (NXT.L) has said it will save £25m in the first year of a no-deal Brexit, and will cut prices by around 2% in the UK.

The company’s pro-Brexit chief executive Lord Wolfson said it would pass on the benefits of lower taxes on many imports to consumers.

Lord Wolfson said prices would be likely to drop in January if Britain left without a deal in October, but said he still hoped the government would strike an agreement.

But the retailer says there is a high risk of queues and delays at UK and EU ports because of increased customs procedures.

READ MORE: Property sales fall as ‘never-ending Brexit saga’ hits market

The analysis is set out in a ‘Brexit preparation and impact analysis’ published by Next on Thursday alongside its half-year results, which showed a 2.7% rise in profits to £316.9m.

Next shares slumped by 3.9% as it warned autumn trading was “disappointing” because of warmer weather, warning of a weaker third quarter.

Online sales growth of 12.6% in the six months to July offset a 4.6% decline on the high street.

How a no-deal Brexit could save Next money

Next said it “welcomes the new temporary tariff regime which brings certainty and a significant reduction in duty on clothing.”

The high street brand said the government’s plans to axe tariffs on 87% of UK imports for up to 12 months would mean significant savings overall.

Britain currently enjoys tariff-free trade with the EU, but certain goods imported from many other parts of the world face significant taxes.

The government’s tariff plans announced under Theresa May would see new duties charged on some EU goods, but lower taxes on certain goods from much of the rest of the world.

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The fashion and home furnishings firm says it stands to benefit overall as it imports far more of its clothing products from outside the EU than from inside the bloc.

The retailer would see its taxes plummet from £35m to £13m on around a quarter of Next’s products which are imported from countries Britain has no trade deal with.

Duties would also drop from £22m to £12m from a group of developing nations that includes Cambodia, Bangladesh, India, Vietnam and Sri Lanka. THese countries currently make up 57% of Next’s stock.

The retailer would be forced to pay £6m a year more in duties on imports from the EU, but said this was “more than offset by the overall duty saving.”

What Next fears about a no-deal Brexit

An employee of Eurotunnel and his dog check trucks on their way to Great Britain during a day of test in case of Brexit at the entrance of the Channel tunnel in Calais, northern France on September 17, 2019. - British Prime Minister Boris Johnson on September 16, 2019 said there was a "good chance" of striking a Brexit divorce deal with the EU, following talks with EU chief Jean-Claude Juncker and Luxembourg's premier Xavier Bettel. (Photo by DENIS CHARLET / POOL / AFP)        (Photo credit should read DENIS CHARLET/AFP/Getty Images)
Checks are carried out at in Calais. Photo: DENIS CHARLET/AFP/Getty Images

While Next welcomes the tariff regime overall, it has challenged the government over several products that will still face taxes.

It says it is “hard to see the justification” for leaving tariffs on certain imported goods such as new-born baby grows where the vast majority of production is outside the UK.

“We would urge the government to review the temporary tariff regime with a view to eliminate tariffs which provide no material protection to UK producers,” it said in the report.

It also warns that interruption to the smooth operation of UK ports “represents ther single biggest risk to our business from Brexit,” calling for information from the government on how it will managed and mitigate risks.

READ MORE: UK firms keep hiring despite no-deal Brexit and recession fears

“It is not yet clear how well prepared HMRC systems, customs and other relevant personnel will be for the upcoming potential increase in workload and data capture,” the retailer said.

Many firms importing and exporting will be subject to new trade requirements overnight, such as having to fill in customs declarations giving details about the products crossing borders.

Next says there is “no reason why goods should not flow with relatively little friction,” but says it relies on UK authorities and businesses being fully prepared.

Next says it has “enhanced and tested” its own computer systems and established “new procedures” to comply with new rules and meet the extra workload.

The retailer said it is now testing its “overall Brexit plans” for a second time to ensure it is ready for a 31 October departure, after trialling them in the run-up to the initial March departure date.

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