If press reports are to be believed, and the Treasury is hoping to "shame companies into competitiveness", why not look at the facts first? In general, prices in UK stores are higher than in the US for the following reasons.
Firstly, distribution costs in the UK are significantly higher. Petrol prices, one of the highest vehicle excise duty rates in Europe, and congestion on our roads, all add to British retailers' distribution costs. Secondly, British retailers pay higher rents, and face costs in negotiating tortuous planning procedures and regulations.
Thirdly, UK retailers contend with EU regulations, compared with the freer US market. Fourthly, US retailers have a larger number of outlets, and thus, significantly more bargaining power when buying from manufacturers. The top five UK retailers between them have 2,244 stores, compared with the top five US retailers with 14,131.
Despite these cost disadvantages, prices in shops are falling in real terms. Even in nominal terms, retail prices have fallen on goods ranging from bread to electrical appliances, to clothing, and gardening products, compared to prices in January 1987
Finally, one must consider the appropriateness of the exchange rate. Sterling is 25 per cent overvalued against the dollar. Comparison of prices, where exchange rates deviate so far from Purchasing Power Parity, makes sterling prices appear more expensive.Reuse content