#40 Next CEO: The Crisis Facing Entry-Level Employment

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1:20Hello and welcome to Big Boss Interview. If this is the first episode of Big Boss Interview, you're in luck. There's loads to catch up on on BBC Sounds. And make sure you check out that back catalogue from industry leaders at some of the UK's most influential companies, the world's most influential companies. We have the likes of Amazon, Google, Vodafone, Centrico and British Gas, Raspberry Pi, all pulling their bosses forward and us being able to have a chat with them. The BBC's business editor, Simon Jack, is here this time. And he's been speaking to another stalwart of the UK high street. Simon Wolfson, Lord Wolfson, he's a Conservative peer, is considered one of the canniest CEOs in the UK.

1:59He's been in charge at Next for the last 25 years. Now, that is a remarkably long stint when you consider the average lifespan for a CEO is four to five years in the top job. It might have helped that his dad was chairman of the company when he took over as CEO aged 33. But most would say luck has had little to do with his longevity. Next has thrived and grown while other high street names have wilted and died. Next still has 700 stores worldwide, 500 of them in the UK and Ireland. It employs over 30 ,000 people. And he's got some first-hand data on what a lot of people recognise is a youth unemployment crisis.

2:38Next, however, is on course to again produce over a billion pounds in profit. But quite apart from how he manages the company, he's got some pretty strong opinions on how we should be managing the country. This is half business interview, half political manifesto in a way, planning, energy, transport policy. He's got a raft of suggestions to make Britain more prosperous and yet explains why he doesn't fancy public office himself. Here he is, Simon Lord-Wolfson, chief executive of Next.

3:12next when we've spoken before you warned that changes to the national living wage very sharp increases over the last couple of years and the new raft of employment rights would deter some employers from investing you own your own figures where it would cost you 70 roughly 70 million pounds. What has it done to the size and shape of the Next workforce?

3:37Lord Wolfson:I think, you know, fortunately, Next is in a position where we're still growing. So the growth that we've got in the business overall has meant we've pretty much kept numbers the same. However, across our industry and across the whole economy, you can really see a dramatic fall in entry-level employment opportunities. And let me give you an example of that. In our stores, just two years ago, we had 10 applicants for every single job vacancy in our shops. That's high. Today, that figure is at 19. And I think that doubling of applicants for shop jobs is indicative of just how big the crisis is in youth unemployment at the moment.

4:12It's 15 % around youth unemployment, higher than we've seen even in some places in Europe, which is traditionally we've been lower than that.

4:23Lord Wolfson:What is the answer to that? I mean, how do we do that? It feels like it really is a crisis. I think there are two steps. The first step is reduce the tax on entry-level employment. The increase in national insurance and national living wage last year increased the cost of entry-level part-time work by 14%. So first of all, that has to be reversed. Secondly, and much more importantly, we need to get the whole economy great because youth unemployment is really a symptom of a wider problem with employment in the economy. And of course, if you've got fewer jobs, the people who suffer most are the people with the least experienced, and that is the youngest.

4:59You said that there would be fewer hours, fewer jobs overall within the organisation. Did that actually happen? In stores, yes. In stores, yes. So I'm trying to imagine what happens. What are the jobs that existed three or four years ago that don't exist today in store? fewer people helping in shops as a result of volumes coming down and efficiencies going up as productivity goes up you need fewer people to do the same tasks how do you how are you more productive in sort of you know refolding something that someone's tried on or sitting in a till i'm

5:32Lord Wolfson:trying to imagine what this productivity what this automation might look like well it's lots of very small things but for example um automated returns where rather than the customer going to a till and scanning and giving it up to a human being and scanning it at the till. You scan the item and put it in a locker. That saves a lot of money on returns. It's all those tiny little improvements to productivity that reduce the number of hours you need to service the business you have by a little bit. And of course, in the rest of the business, we're doing exactly the same thing. In warehousing, huge program of mechanization.

6:05In terms of systems and technology, we're looking at All sorts of new technology there to make it faster, quicker, cheaper to write computer systems as well. And the thing is that retail, along with hospitality, has often been younger people's first port of call in work. It's the entry level, their first experience of the world of work.

6:26Lord Wolfson:And if you can't give them jobs, who can? It's a problem. And the problem is going to be made worse when the effects of the restrictions on flexible part-time working come into force. OK, this is part of the employment rights, which if you give a certain amount of hours to somebody, you have to give them a contract guaranteeing those hours into the future. What's going to be the result of that? Well, the result of that is we will offer fewer hours, extra hours at Christmas. That's going to be bad news for our colleagues who want the extra hours, particularly students who in holiday time need the extra hours.

7:05And, of course, bad news for customers because service won't be as good.

7:07Lord Wolfson:So the years of the Saturday job, the summer job, the Christmas job, they're threatened? I don't think they're going to disappear. I wouldn't want to exaggerate. But it is going to get much harder to offer people those extra hours because the risk is you then have to contract for those hours forever. And, of course, you can't afford to stop your shop, to have the same number of people in your shop in February as you have in the round of Christmas. I mean, some of these people will be your current and future customers. Do you worry that with fewer jobs for younger people, they'll have less money to spend in the future?

7:43I mean, this all comes back to one thing, and that is that unless the government can do things to stimulate the wider economy, to get growth back into the economy, we are going to have not just problems in terms of unemployment, but problems in terms of tax revenues as well. So, you know, what government should be focusing on is not micromanaging youth unemployment, but getting the whole economy moving. And that means reforming planning, energy policy, transport policy to really get the economy moving. On the staffing issue, you consistently deliver around a billion pounds in profit, over a billion.

8:18and some people will say when it comes to you doing your calculations the shareholders always win and the workers come second i mean ultimately when you run a business you have to make sure that you're keeping everyone happy you have to pay you have to pay um your colleagues enough to make sure that you're recruiting the right people you have to treat your supplies well to make sure you're getting the right stock you have to pay your landlords enough to get the right property and if you do all those things then you'll make enough money um for your shareholders so you've got to balance all of those things but you do have to make a profit and you know if you look at retail over the last 25 years if I go back to when I was sales director for next and walked up and down the high street going into every single shop on the high street to have a look at what others were doing 70 to 80 percent of the names that were there then have gone and what you can't do is say well we just won't run the business for profit because if you don't run the business for

9:10Lord Wolfson:profit you just don't stay in business people will look at your financial results uh you know over a billion pounds in profit and say can't you just share a bit of that with the workforce you know why is it the shareholder has to win the workers have to you know become second our second fiddle well i think there are two things i think first of all national living wage has gone up 117 over the last 15 years so i think i think there has been enormous progress on that but i think the other thing and it's a sort of deeper question is that when people talk about a company making a billion pounds. They assume that that's somehow a person with a billion pounds in their pocket, and they must be very, very rich.

9:50But the nature of public companies is that we are owned by hundreds of thousands of savers whose savings are often very modest. The average dividend we'll pay to an individual saver will be around£300 a year. So, you know, when you say a billion pounds a year, instead of that, say£300 a year income, can't you share a bit of that? Well, for a lot of our shareholders, that's very important. Well, maybe the shareholder would say, don't give me three heaven give me 295 and give a few more people a chance to get their foot on the

10:18Lord Wolfson:door on the on the career ladder and get a slightly better paid job well they might say that but often those people you know when you look at people in who are relying on their pensions and savings to live um they're in a worse situation than the the people working in our shop so i think you know if government wants to take the view that they want to redistribute wealth from savers to workers. That is something that, A, they have done over the last 10, 15 years and can continue to do. But I don't think it's the prerogative of individual businesses to take money away from the people that ultimately employ them to give it to the people that they employ.

10:54There's a lot of people out there finding that first rung, if you like, of the employment ladder pretty difficult to get it. Are there any comforting words for people who are struggling?

11:05Lord Wolfson:I think the key is to get a job. I think once you've got a job, if you're prepared to work hard, think about your work, be adaptable, change, learn within your work, then I think you have a great future. I think the biggest problem at the moment is people getting work. So get a job, any job. Get a job and then work as hard as you can and keep running in that track and go as far as you can. It would be my advice to young people. That's certainly what I did. Okay. Let's talk about the economy. You say you need to get that growing. If you look at the first quarter this year, things are going pretty well.

11:38The economy grew 0.6%, higher than people expected. Inflation was coming down. Interest rates were on a downward trajectory. Do you feel a bit sorry for the Chancellor, the Prime Minister?

11:48Lord Wolfson:Things are going pretty well, though. I think it's very difficult not to feel sorry for people who have constant pressure and being blamed for everything. So, yes, to a degree I feel sorry for them. But, no, Britain's economy should be growing much, much faster. 0.6%, 0.6%, that's way below what the economy should be growing at. The UK economy has a number of blockers that prevent us growing at 2%, 3%, 4%. And they are planning energy policy, transport policy, to degree migration policy. All of these things are holding the economy back. And if government could just take its foot off the brakes, we could have a much, much faster growing economy.

12:27Well, let's talk about those in a minute. The government says it's got the right economic plan. part of that economic plan is closer ties with Europe. Now, you were a prominent Brexit advocate. The vast majority of economists say we've got lower GDP than we otherwise would have had. We've got weaker trade, particularly in goods exports. We've got reduced investment, lower productivity. Is it time to admit that Brexit was a mistake? I think it's a terrible mistake to be arguing about Brexit at all when we've got things like we can't build the houses we need in Britain because of our planning system.

13:03Our road networks are grinding to a halt. Our energy is some of the most expensive energy in the whole world. And we want to go back into three or four years of bickering about Brexit. That would be the mistake. Focus on the things that will definitely grow the economy

13:18Lord Wolfson:rather than re-enter an argument that none of us enjoyed. But nevertheless, when you see we've had a few years of it now and I'm just running the rule over what's actually happened, most people would say it's been bad. Does that mean that the, do you have a view on whether the government's aspiration to have a closer relationship with the EU is a good or a bad idea, given the evidence we've seen of Brexit? I think it, I think it'd be a terrible idea to reopen the Brexit debate when there is so much to do. And if we do that, all we will argue about is Brexit for the next four years. Nothing will change in planning.

13:52Nothing will improve our road networks. Nothing will reduce our energy costs. Do we really want to go back to having what is essentially a political argument

14:00Lord Wolfson:when our economy is so sluggish? Let's talk about planning. You've described it in a recent paper you did as the single biggest drag on economic growth in this country. Why so? Can you elaborate on that? It's very simple. If you look at the cost of an acre of land in the area that I live, just 50 miles north of London, an acre of agricultural land is around£15 ,000 an acre. give that same piece of land planning permission and it's 1.5 million pounds minimum to buy the land let alone the hundreds of thousands of pounds you need to spend just to get the planning permission that cost that 1.5 million is the cost of our planning system and that money is being pulled out of our economy and what that means is that there's no money to invest in homes we're not getting that and when builders do get planning permission of course they cram as many properties onto that space as they possibly can.

14:53And the quality is not very good because there's no money left over. That one point, the government has in its power the ability to create billions and billions of pounds worth of value by releasing more land for building.

15:06Lord Wolfson:OK. But, you know, you're a Tory peer. You will know that the shires of the home counties and elsewhere where people think that the property rights are important, there's a bit of a kind of Magna Carta kind of feel to it. It's like my house. I reserve the right to object to something being built over there that I don't like. That's part of local democracy. Well, I think there are two things. First of all, you bought your property, not all the property around you. I think people are very reasonably worried about building because we have this planning system that has resulted in all the new building that we've got being terrible.

15:42And of course people are reasonably worried that if they're going to have an enormous, densely and badly built housing estate opposite their home that will devalue their home, of course they're right to be worried about that.

15:54Lord Wolfson:But the reason they're so worried is because we've got a planning system that delivers terrible housing. But your solution is abolish planning altogether. My solution is replace planning with principle-based building regulations. so that rather than say the government will release a trickle of land at enormous cost, we say you can build on any land as long as what you build does not damage the value of your neighbour's property, that you leave the infrastructure that you found in as good a state, if not better than you found it, and that some land that is genuinely of communal value is absolutely preserved for communal use.

16:32And it's that sort of principle-based building control that will give us the quality homes that we need in the places we want to live without creating the sort of terrible housing estates that have devalued people's properties.

16:46Lord Wolfson:Okay. You have the same approach in a way to erode the road network. Explain what you're talking about there. Well, the way we pay for the road network is so far out of date. It's the 1950s we're paying for. We pay for the road now. We pay a lot of money,£25 billion in fuel tax. But regardless of which roads we use and when we use them, if instead of fuel tax we paid for roads by the mile and maybe pay more at peak times, there would have two effects. The first is it would encourage people to think about exactly when they're travelling and at peak times share cars. And secondly, it would allow the government and private sector to invest in the roads that were most congested because they could get the increased revenues from those roads flowing more freely at peak times.

17:32So you have reduction in congestion and investment through creating a

17:38Lord Wolfson:proper market in roads. So the market seems to, there's a consistent theme here, the market will get this stuff right every time. A properly regulated market. You have to have the right rules. And of course, government's role in setting those rules is absolutely vital. But the collective intelligence of the 60 million people who live and work in the United Kingdom, that collective intelligence is so much more powerful than the collective of a handful of overworked bureaucrats in London trying to decide where they put roads. So that's interesting because the government clearly wants to take quite a muscular, quite an interventionist approach, use its power for good, have industrial strategies where it picks the big sectors it wants to invest in, the ones where we have the most strength let's lean into what we do well uh that's a mistake you say you say well of course it's a brilliant idea if they are brilliant investors who invest in the right sectors and do it extremely well the chances of them that i'm doing that seem to me extremely poor they have no experience of doing that and generally the political pressures on governments mean that they end up investing to win votes not to grow the economy that that unfortunately is the truth and isn't that hasn't that been the case for every stripe of government over the last 30 years or going back even further no if you look at the biggest acts of the biggest things that have driven economic growth they have been about taking the foot off the brake not pushing on the accelerator whether that be the big bang reforms in the city or the repeal of the corn laws in the 1830s it is the releasing the natural energy of the british economy has done far more to create wealth than government investing in steel and coal in the 1970s, which was a catastrophe, and cars.

19:25So all this industrial strategy has been tried many, many times before and always failed, and liberating markets to harness the collective intelligence of the British people to invest where that investment is most needed has always worked.

19:40Lord Wolfson:So which one do you choose? So does that mean things like GB Energy, the National Wealth Fund, all of this kind of stuff, that you think that's the wrong approach? Look, it may well make a small difference, but the real problem is most of it involves government spending money or telling other people how to invest their money. And ultimately, that's not what government is best at. Government is best at creating the rules and creating an environment for a free market to work fairly and effectively. Once government sort of moves from being the referee to being the player, they make terrible mistakes.