by Mark Thoma
Why are prices so high in the UK?
Tourists tell Britain: you’re a rip-off, by Jon Ungoed-Thomas, Times Online: ...[W]hy is Britain so phenomenally expensive and why on earth do Britons put up with it? So exercised have tourists and other visitors to Britain become that they have started an internet blog on the subject and the “Basil Fawlty factor” that some hold to be responsible.
Britain’s rip-off prices were confirmed last week by a Sunday Times survey that found we are indeed being overcharged for a wide range of everyday products and services.
Whether it is a meal out, a trip to the cinema or a weekend in the country, in Britain it typically costs about 30% more than in comparable countries. Our train fares are four times the global average.
But what perplexes tourists is not British prices per se but the reasons for them. ... Tyler Cowen, professor of economics at George Mason University ..., said: “England is not the wealthiest country in the world but it has some of the most outrageous prices. It’s an overcrowded country with high property prices, but it doesn’t explain why people have to pay so much.”
Cowen has prompted a lively internet debate on the subject on his economics blog, Marginal Revolution, under the heading: “Why is the UK so expensive?” ...
It is not just the goods and services bought by tourists that are sold at premium prices. From the cost of a mobile phone call to downloading a music track on iTunes or ordering a cup of coffee in a cafe, Britain regularly tops the world league table of the most expensive countries. Our transport costs are also among the highest....
Although London is well known for its spiralling prices, the problem is far from contained there. Anyone heading for the seaside is likely to find accommodation and food prices to rival the capital’s. ...
Daniel Kalt, head of economic research at UBS, said the strength of the pound and the housing boom contributed to the higher prices. He said the introduction of the euro in other EU countries had meant greater price competition there. Britain’s relatively high wage packets were another factor.
But contributors to Cowen’s website are not all convinced, not least because the boom in house prices has been a world-wide phenomenon. Britain is also well known for having benefited disproportionately from an influx of cheap eastern European labour that would normally be expected to keep prices down.
Instead they propose a more straightforward explanation. “British consumers are used to being mistreated and cheated,” says one contributor to the debate. “What surprises many American visitors is how seldom locals make a fuss about bad service or poor quality goods.”
Economists agree that the willingness of Britons to be charged higher prices may be a factor. Alena Kozakova, principal economist at the consumer magazine Which?, said: “Consumers are more demanding in the US and aren’t prepared to be overcharged. ...
However, Gary Goodman, marketing director of Pricerunner, said the ease with which British customers could now compare prices was likely to drive down high profit margins and there was already good news for customers. “If you look at the costs of CDs, DVDs and books, we are now actually nearly the cheapest in Europe,” he said.
Update: I just realized this was covered here already under "Nine reasons why London is so expensive."