The true cost of being British
It hasn’t been easy being a Brit lately. Of course, other economies are struggling as well, yet bills seem to be cheaper and taxes lower elsewhere, with the state appearing to offer more help than it does in the UK. Judging by this, it seems that it’s not the rising cost of living that’s a killer, it’s the cost of being British.
Every year, Mercer HR Consulting conducts a survey of the most expensive places to live in the world. This year London came number three, after Moscow and Tokyo. Meanwhile, according to the European statistics agency Eurostat’s survey of price levels in Europe, the UK gets a score of 112, against an average of 100, compared with 103 in Germany and Italy, and 93 in Spain. Only Scandinavia and Switzerland are more expensive.
Most worryingly, the cost of basic essentials is spiralling. Grocery prices, for example, are rising at a spectacular 9.5% in the UK, according to the Organisation for Economic Cooperation and Development. This is of course a global problem – increasing energy costs are pushing up the price of production, and climate change is creating a shortage of certain crops, including wheat.
But consumers in the UK seem to be particularly hard hit. The OECD study put the inflation rate for food in Germany at 7.12%, Italy at 6.12% and France at just 5.77%. At this rate, we’ll soon be the most expensive place in Europe to buy groceries.
And it’s not just food. Consumer goods ranging from clothes to furniture seem overpriced compared with elsewhere. Compare the prices of an international retailer that sells the same goods in different countries such as Ikea. A ‘Vinstra’ bed frame in Germany would set you back €210 (around £169), but the same bed in the UK would cost £199. This obviously includes the cost of shipping and tax, but it shouldn’t add more than 15% to the price.
Unfortunately, the value of the pound plummeted against that of other currencies last October, which means imports are going to start costing even more.
Back in 1998, the price of cars in the UK caused headlines like ‘Rip-Off Britain’. This led consumer watchdog Which? to launch a campaign for cheaper cars. There have been some changes since then, but the UK still remains the most expensive country in Europe for some models. A European Commission study from 2008 found we pay £12,900 for a VW Golf, compared with £10,986 in Denmark – almost 15% more – and £20,364 for a Vectra, which would cost £15,411 in Latvia.
Everyone around the globe has also been hit by the rising cost of keeping the petrol tank topped up, but the UK has been hit with fuel tax too. According to the AA, despite the fact that the UK is an oil-producing nation, we have the eighth-highest unleaded petrol price in Europe at 95p a litre, and the second-highest diesel price – after Slovakia – at 109p a litre. Slovenia is cheaper for unleaded at 78p a litre, and much cheaper for diesel at 99p a litre. Meanwhile, the cost in the US is a mere 36p and 48p respectively.
Edmund King, AA president, says: “More than half of all motorists blame the government, even though global pressures and market speculation have also raised fuel costs. The Chancellor needs to look again at the level of duty.”
The oil price has also affected energy prices. Again, we seem to fare worse than most countries. Energy inflation figures from the OECD in June found it running at a massive 19.09% in the UK, while in France it’s 16.64% and Germany only 14.59%. We are mid-table in terms of electricity prices in Europe, but at this rate we could end up being the most expensive.
Ann Robinson, director of consumer policy at uSwitch.com, says: “2008 will be remembered as the year Britain was crippled by inflation and soaring fuel bills. The government’s failure to stamp out fuel poverty means it’s becoming an everyday part of British life.”
For most of us, however, our biggest regular expense is the mortgage. Despite falling prices, property in the UK is still ludicrously unaffordable. The Demographia Housing Affordability ratings work out how many years’ average salary it would take to buy a house. A multiple over 5.1 years is considered to be seriously unaffordable.
The UK features highly amongst the world’s least affordable markets, with Bournemouth in Dorset as the highest-ranking UK area. With a salary multiple of 8.9, it’s the ninth-least affordable place to live in the world. Still, it’s better than Los Angeles, which, with a multiple of 11.5, tops the chart as the most unaffordable place.
The UK has been nicknamed ‘Treasure Island’ because the conditions are ripe for ripping consumers off. However, the culprits are not only companies, the government’s also bleeding us dry through taxes. While our income tax is fairly low at 20%, it’s the hidden taxes that are crippling.
Neil Sims, a chartered financial planner with Haysmacintyre, says: “A top-rate tax of 40% doesn’t make us the best in the world, but we’re not the worst either. It’s the additional taxes we pay on top of income tax, such as inheritance tax, stamp duty and capital gains tax, that mean we’re quite heavily taxed.”
In fact, in the past decade or so more than 100 stealth taxes have been introduced or increased. We paid £115 billion in tax and national insurance in 1996-7, and 10 years later we paid more than double that, at £234 billion.
Tax Freedom Day, which marks the date when you stop working to pay taxes and start earning for yourself, now falls a full week later than it did in 2002, and a month later than it did in 1963.
The UK’s TFD falls on 2 June. By contrast, in Switzerland, TFD falls on 14 April, in the US it is 23 April and, in the Netherlands, it falls on 27 May.
Pensions and benefits
And what do we get in return for all this tax? Certainly not the best pensions in Europe. At £90.70 a week, our pensions are the meanest in Europe, at just 17% of average wages. The UK was ranked the worst in the European Union for the second year running in Aon’s third European Pensions Barometer.
Joe Harris, general secretary of the National Pensioners Convention, says: “More than two million pensioners are living below the poverty line. Today’s state pension is worth even less in relation to average wages than in 1908. The government should raise it above £134 a week and restore its link to earnings.”
Other benefits shame the UK too. Maternity leave, for example, is 39 weeks (six weeks at 90% of full pay and the next 33 weeks at a flat rate of £117.18 a week), whereas in Italy it’s five months at 80% of salary.
Sweden has Europe’s most generous welfare system, giving mothers 80% of their salary for 13 months of maternity leave. And parents pay just £90 a month for subsidised childcare. But this generosity doesn’t come cheap: the Swedes are among the most heavily taxed in the world.
Healthcare in the UK is poor too. There are differences between Scotland and England, but throughout the UK the figures are alarming. A survey by the New Commonwealth Fund asked people in seven industrialised nations how confident they were they would get safe, quality medical care. Only 28% of people in the UK were very confident, putting us in joint fifth place, compared with 29% in the Netherlands, and 35% in the US.
This is partly because of chronic underinvestment – according to the OECD, we spend just 8% of GDP on health, compared with 11% in France and 15.2% in the US. We have 2.4 dentists per 1,000 people, compared with five in Greece and 3.8 in Spain, and we have 2.3 acute care beds per 1,000 people, compared with 6.4 in Germany.
But before you start packing your bags to move abroad, as many people have done, it’s worth looking at these figures in closer detail. While the UK is undoubtedly failing on many levels, on others it’s actually doing much better than other countries.
Take shopping, for example. Inflation is alarming, but the underlying prices remain among the most affordable in Europe. The OECD compares prices in Europe against GDP, with affordability expressed on an index where 100 is average. In the UK, we are cheaper than average for all groceries except meat.
The only area where the UK is way above the average is tobacco, at 205, where taxes have been deliberately imposed to inflate the price. We are also below average for clothes – at 87 – and housing, water, electricity and gas – also at 87.
We’re not badly off when it comes to cars either. In fact, Germany is the most expensive place in the EU to buy a car.
Inflation also seems to be coming under control. The latest figures from TNS found that grocery price inflation fell in the three months to November from 9.3% to 8.9%.
Energy too sees us mid-table. High energy taxes put Denmark as the most expensive in Europe for electricity, at roughly twice the UK’s cost. Of course, energy inflation is alarming at 19.09%, but it’s nothing compared with the US where energy prices are rising at 24.66% a year. And, in recent weeks, energy prices have shown they can fall as well as rise in the UK.
In terms of benefits, we could do better – but we could also do worse. For example, there are plenty of countries, including the US, that don’t require employers to offer any paid maternity leave at all.
Again, in health terms, we could do much worse. A study from the London School of Hygiene and Tropical Medicine in 2008 rated 19 industrialised countries for preventable deaths from treatable conditions. The UK was ranked a shameful 16th, but the US, where less than 85% of the population has some form of health insurance, came bottom with 109.7 preventable deaths per 100,000 people.
As for taxes, there are many who are less fortunate than we are. In March 2008, the Danes took the crown as the most taxed nation from the Swedes, but both nations have crushing tax burdens at 48.4% and 47.8% respectively. According to Worldtaxpayers.org, Britain isn’t even in the top 10, with 14 countries paying higher taxes than us.
No one country is best for everything. Sweden, for example, may have excellent benefits but it has high taxes and, while Ikea beds may be cheaper in Germany, cars are more expensive. So we can at least console ourselves with the knowledge that elsewhere in the world people are just as disgruntled as we are.
If you think it’s bad in Britain try Denmark
* We have sales tax of 17.5% compared with 25% in Denmark, and a top rate of income tax of 40% compared with 63% in Denmark.
* Denmark also suffers from high energy taxes, making it the most expensive place for electricity in Europe.
* It charges full income tax on all savings interests and capital gains, and there are no tax-advantageous savings schemes.
* Registration tax on cars is 180% for amounts over £8,600 and 105% for amounts below that.
* In all, Denmark has the highest tax burden in Europe.
* It also has the European Union’s most expensive television licence, and most expensive iPhone.
The Organisation for Economic Cooperation and Development was established in 1961 to promote policies that will improve the economic and social wellbeing of people around the world. It uses a broad range of economic information and research to help governments foster prosperity and fight poverty through economic growth and financial stability and also ensure the environmental implications of economic and social development are taken into account. It can only make recommendations and has no powers of legislation; nor can it compel members to adopt any recommendation. Based in Paris, the OECD currently has 34 members, including the UK.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.