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Friday, October 15, 1999 Published at 22:42 GMT 23:42 UK


Do we live in rip-off Britain?

Cars and shops have been the target of "rip-off Britian" attacks

Everybody loves to believe they are being ripped off. The BBC's Evan Davis investigates for Newsnight whether the charges of "rip-off Britain" are justified.

It is always reassuring to think the rest of the world somehow owes us a far better living than we enjoy.

The press has apparently validated feelings of discontent by giving us endless examples of the apparent injustices on every shelf of every high street.

[ image: Shops have been accused of overcharging]
Shops have been accused of overcharging
But when you probe the subject more deeply, you find that pricing is far more complex than simple accusations about rip-offs suggest.

For one thing, many of the companies apparently ripping us off are not making much money.

Companies like British Airways and Levi Strauss, both recipients of consumer and media wrath, are struggling at the moment to satisfy their investors.

And when you look at the retailers who typically take most of the flak for overcharging in the UK, although they do well (they make far bigger margins than their US counterparts), they do not come close to making enough money to account for the perceived differences between our prices and those across the Atlantic.

If you do not believe it, take a look at the figures.

Typically, when a British store sells a product for 117.50:

  • 17.50 is VAT
  • 10 goes to the retail staff
  • 6 goes to the retail land lord in rent
  • 5 goes to the store as profit
  • 79 goes to the manufacturer and distributor

Even if the retailer made no profit at all (which would not be good for the long term investment in retailing!) the price would not fall by more than 5%.

Hardly the stuff of newspaper headlines: it is equivalent to cutting the price of the Daily Mail from 35p to 33.3p.

Exchange rate blues

Another important point to remember is the exchange rate.

The pound is too high at the moment - for a whole host of reasons.

On almost any normal reckoning, it is about 15% too high.

Now what would happen if it were 15% lower? Well, all foreign prices would look 15% higher when we convert them into sterling to make any comparison with ours.

Suddenly a lot of the UK price premiums would magically disappear.

It is surely no coincidence our obsession with rip-off Britain has come just at the time the pound is strong.

Good deals

And do not forget anyway, that sometimes we do get a good deal.

You cannot just look at the high prices we pay, without noting the bargains.

For example, if you ignore what the government takes in tax, we pay less for petrol than other European countries.

After tax, of course, the price goes rather higher than the European norm.

The British consumer is not always so badly off.

What's the cachet?

Perhaps the most important argument about apparent rip-offs though, is the role that cachet and marketing play in the products we buy.

In most markets, buyers can buy something cheap and cheerful - without the trimmings.

Or they can have a more up-market product with extra packaging, a bit of personality, perhaps a little extra quality, and a far higher price.

Now who is to say you are being ripped off if you choose to pay extra for a more enjoyable shopping experience?

Take a product like Stella Artois beer, advertised as "reassuringly expensive" (In fact, it is not that pricey).

In France, Stella is cheaper than in England, but it also has a more everyday image.

In Britain it is positioned as a premium larger at a premium price.

Beware of Bargains

Little touches are added in the UK - like an embossed Stella logo on the can, and heavy advertising.

Now, consumers choose to buy the product, when cheaper beers (that are probably more or less indistinguishable from Stella) are available. Is Stella ripping us off?

Well, if consumers choose to buy it when others are available, I would argue that it is not.

If Stella in Britain was positioned as it is in France, there would undoubtedly be other more expensive beers that people would buy instead.

As one executive from Stella's advertising agency, Lowe Howard-Spinks, told us: in Britain, you would not attract buyers by marketing something like beer as "reassuringly cheap".

Price-sensitive Brits

We Brits do appear to be less price sensitive in a number of areas, and more brand conscious.

Call us suckers, call us sophisticated, it just misses the point to call something a rip-off when we are not buying it for the pure functionality, but are buying it instead as a piece of self-expression.

Finally, a warning.

[ image: Ham tested showed that price is not everything]
Ham tested showed that price is not everything
If we apply too much pressure on shops and companies to lower the prices we see on the shelves, it encourages them to cut corners on aspects of the purchase you do not see.

For example, ham has been one product included in Asda's assault on high supermarket prices in Britain.

Newsnight took several cut-price hams to a public health testing centre.

While the hams looked about the same value for money when you scrutinised the packet, there was actually a 15% variation in the price of meat they contained, because different amounts of water had been added.

Asda's ham did not fare particularly badly in the comparison.

But the results of the test give a powerful reminder that price is not all when you buy things.

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