Published in The Observer (London), 17 August 2008

http://www.guardian.co.uk/theobserver/2008/aug/17/london.communities

When I moved from Germany to London four years ago I needed some furniture for my new flat. I thought that some shelves, a small table and a few chairs would do nicely, so off I went to my nearest Ikea. It looked and felt exactly like the one in Essen, my home town. There too you have to fight your way through the whole store, past all those bathrooms, kitchens and living rooms to reach the useful odds and ends just before the check-out. The menu at the restaurant was also identical: the same salmon steaks and Köttbullar meatballs with lingonberry sauce. There was only one thing that was strangely unfamiliar: the prices. They were much higher.

I quickly bought a packet of my favourite Swedish biscuits, got a copy of the Ikea catalogue and called my friend Jenny. Jenny is not only a great fan of Ikea, she even learns Swedish (I sometimes wonder whether she wants to talk to the Björkudden, Fjörby and Granås furniture). Most importantly, though, she still lives in Germany.

I asked her to take the German Ikea catalogue off her Billy shelf and go through it with me over the phone. It was fascinating. The German and British catalogues had the same products, illustrated with the same pictures on the same pages, but with markedly different prices. The German items were about 20 to 30 per cent cheaper than the same ones in Britain. I realised that it I would have saved a lot of money if I had bought my new furniture back home and then brought it with me to the UK. This was my introduction to the phenomenon commonly known as ‘Rip-off Britain’.

Over the following years my impression of Britain as an expensive place was confirmed, especially when I compared it with Germany and Australia, the two countries where I had previously lived. Unfortunately, the Ikea price hikes were not the worst difference. Train tickets were bad, too: London to Manchester and Cologne to Hanover are about the same distance, yet a standard second class single will set you back £115 in Britain but only £49 in Germany. A trip from Berlin-Alexanderplatz to Schönefeld airport costs the equivalent of £1.67. A similar journey from central London to Heathrow, however, is £4 on the tube and £14.50 on the Heathrow Express.

Movie tickets are just as bad: on Friday evening you can watch Will Smith’s Hancock for £13.45 in London’s Leicester Square or for just £8.40 in Sydney’s George Street. Australians also put cheaper fuel in their cars: it may seem unbelievable to British motorists, but Sydneysiders are currently complaining about record-breaking fuel prices – at just under 80p a litre.

Britain is one of the most expensive countries on the planet and London its rip-off capital. Filling your car, eating out, staying at a hotel or just doing the weekly shopping are all more costly undertakings than in other industrialised countries around the globe – even without taking house prices into account.

International companies know this and pay their staff premium wages when they send them here. Mercer, a human resources consultancy, estimated that London’s cost of living (including housing) was more than a third higher than in cities like Sydney, Amsterdam, Munich or Los Angeles, a difference that would be bearable if there was a corresponding gap in the quality of life. Yet, having thought about it for a long time while my tube train was stuck in a tunnel on Thursday morning, I do not believe this is the case. If anything, life in London is worse than it is in other big, international cities. In a recent worldwide survey, it came 38th on the quality of life score.

No company could expect to survive if it offered its customers third world products and services but charged them first world prices, so why should Britain? If the UK continues to be one of the most expensive addresses in the world while it fails to provide the best infrastructure and public services, it should not be surprised if it loses its most qualified people and fails to attract foreign professionals.

There is also another problem: while young professionals can vote with their feet and go to places where life is better and cheaper, many people, like those with families, cannot. Unfortunately, they are the ones that are likely to be hit hardest by our excessive price levels. Rising fuel and food prices make life even more difficult for them. There are some things the government should do to help them, and some that it should not.

On the one hand, the government cannot do anything to change international oil or food prices and should not try to control domestic ones. But, on the other hand, it can and should create a business environment in which competition is encouraged and taxes are low. For example, it helps parents if they can buy school uniform skirts for their girls for £2 from Asda or 10 fish fingers from Sainsbury’s for 49p, but opening a new supermarket is a nightmarish process under English planning law. Another example: while we are all complaining about high fuel prices, the state deserves at least half of the blame. At current prices, almost 60 per cent of the price of a litre of petrol is made up of fuel duty and VAT.

High taxes and complex regulations have both contributed to the phenomenon of rip-off Britain. In particular, a lack of land supply due to planning constraints has pushed up land prices. But somebody has to pay for this, and in the end it is consumers that are footing the bill for our failed planning policies.

If we care about our quality of life and the cost of living taxes and regulation should be tackled. In the meantime, there is only one way to get my favourite Ikea biscuits at a reasonable price: buy them when I next visit Germany.