Stores overcharge to boost profits

BRITONS ARE getting a bad deal in terms of how much they are paid and how far it goes, according to new Treasury research. Whether we are buying a sofa, a meal out, a car or a kettle, we are being ripped off and would do better to spend our money in America.

Big mark-ups by British retailers mean that high street goods and services are substantially more expensive in this country than the United States. In addition, our average incomes are 45 per cent lower than those of our American counterparts.

The internal Treasury report, which will be used by the Chancellor, Gordon Brown, in his pre-budget statement this autumn, found that prices in Britain are 56 per cent higher on average for furniture and carpets, 54 per cent higher for hotels and eating out, 31 per cent higher for sporting goods, 29 per cent higher for cars and motorcycles, and 22 per cent higher for electrical goods.

British prices for food, drink and tobacco are, on average, only slightly higher than in America, according to the Treasury, but for some products, such as soft drinks, Britons pay 28 per cent more.

One area where British consumers fare better than Americans, however, is in medical costs, which are 71 per cent higher in the US.

The research will feed into Mr Brown's agenda for increasing competition and boosting productivity in Britain. Mr Brown has been keen to discover why there is more genuine competition, which drives down prices, in America.

The research shows that British companies are better at preventing new rivals undercutting them. "This is why the Chancellor wants to press ahead with reform of product and labour markets," a senior Treasury official said. "The ultimate aim is to make sure that competition - proper competition - brings the prices down and the consumer gets proper value for money."

The Office of Fair Trading (OFT) is due to publish separate research, which is understood to show that retailers are squeezing discounts out of their suppliers, but are doing so to boost their own profits rather than to offer their customers a better deal.

The study will provide much of the academic groundwork for the OFT's investigation into the power of big retailing chains, which have increased their profit margins significantly.

The authors of the OFT report, Professors Paul Dobson and Michael Waterson, argue that the trend toward "one-stop shopping" - offering a much wider range of goods - by the big supermarket chains does not benefit consumers.

Professor Dobson accused the big four supermarkets of avoiding competition. "They don't want head-to-head price competition, so the best way to do it is to get a captive set of consumers, then you can increase prices once those consumers are loyal to you."

He pointed to a survey by the Consumers' Association of prices across leading supermarket groups, which showed that those with loyalty cards and other non-price incentives for customers were charging the highest prices.

British Shops' Mark-Up on US Prices

Furniture and carpets 56%

Hotels and eating out 54%

Sporting goods 31%

Cars and motorbikes 29%

Electrical goods 22%