Rip-off Britain is when some products and services cost significantly more in the United Kingdom than in other places, especially the United States and other member states of the European Union.
The term is an expression coined by the tabloid press in the late 1990s to describe complaints and is particularly prevalent in the mass media when the pound sterling is strong, as this makes other states' prices cost less in pounds.
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The phrase originated with a campaign by the Consumers' Association in 1998 aimed at lowering car prices in Britain, which were at the time, and despite legislation outlawing the practice, significantly higher than the EU average.[1]
The Consumers' Association hired a stand at the British International Motor Show, only revealing on press day its true purpose. The organizers, the Society of Motor Manufacturers and Traders, decided not to fan the media flames by ejecting the Consumers' Association.[2]
The phrase had already taken hold in the mass media and it became a term in frequent use to describe anything that was wrong with Britain. Along the way, it proved to be one of the elements that led to a tipping point in the harmonization of car prices within the EU.
The campaign was devised by UK advertising agency Claydon Heeley, who are known for this type of "guerrilla" work.
The level of indirect taxation applied to some products such as alcoholic drinks, tobacco and petroleum and diesel fuel varies widely from country to country, and these products should be excluded from any argument against retailers (as opposed to politicians) for high prices in these markets. Although high taxation also may serve to disguise a high profit margin by the retailer, it may also work in the opposite direction, squeezing profits where there are other legal markets with lower taxation.
While the standard UK rate of Value Added Tax (VAT) 20% generally higher than US sales taxes, differences are often far greater than this could account for. Also, the standard UK rate of VAT is lower than in all but three of the other EU states (although the rate increase in 2011 will bring it in line with other EU states). Secondly, the Crown Dependencies of Jersey and Guernsey are not part of the EU and Low Value Consignment Relief applies to imports. Retailers such as Play.com and Specsavers operate from Jersey or Guernsey specifically as a means of avoiding VAT.[3][4]
In the UK, imported (commercial) goods valued up to £18 are exempt from VAT; for personal gifts the exemption rises to £36. As of 1 December 2008, imports up to the valued of £105 are not liable for UK customs duty.[5]
Companies sometimes argue that some of their fixed costs are higher in the United Kingdom than elsewhere, for example for storage and distribution. The amount of substance to this defence varies from case to case; for example the UK has the fiftieth highest population density of any country in the world, eight times that of the US and over twice that of France,[6] so transportation distances are unlikely to be a factor, and a parliamentary report concluded there was no great difference across EU states.[7]
It is hard to quantify differences in storage costs, since many goods are shipped just in time directly from the manufacturer to the consumer, or in the case of electronic goods and services may not be physically shipped at all but delivered via the Internet.
Quality and safety regulations, while different, are roughly comparable between the markets discussed in this article, though again some businesses argue that increasing safety regulation increases costs which must be passed to the consumer.[8]
Retailers and manufacturers sometimes argue that legal requirements for guarantees and warranties differ between markets and this must be factored into prices.[9]
Perceived or actual higher prices in the UK often have the effect of encouraging British consumers to order goods from the Internet, whether from UK businesses claiming to break a price cartel or directly from abroad, including via eBay and other online auction sites.
Most US Internet retailers ship directly to consumers in the UK which, assuming the customs provisions are met,[5] can provide a worthwhile alternative to higher UK prices. Many believe that true competition from the Internet, and the Eurozone general free trade, will tend to normalize retail prices and put an end the UK being known as "Treasure Island".[1]
Generally, "customer not present" transactions cannot be made for legally controlled products such as alcohol, tobacco, solvents, fuels, or medication.
Electrical and electronic products designed for the North American market may have to be converted to run on EU voltage and TV systems, annulling any benefit in buying at a reduced price. Other products may also differ in specification. They may not come with the same warranties or guarantees, and returning faulty goods may be difficult, or at least not cost effective. Furthermore, products for sale in the European Union should carry the CE mark for safety, but products purchased in the USA or designed for the US market are often supplied with other safety designations such as the UL listing.
Products and services delivered over the Internet are the most obvious market for trade, since the physical barriers for shipping the goods are eliminated. Therefore, one would expect Internet-based markets to tend to normalize across free trading countries.[10]
The biggest player in music downloads, Apple's iTunes, operated a model where purchases can only be made in a domain where the users' means of payment is registered. UK customers are therefore tied to the offerings in the UK iTunes store: a disadvantage both in price terms (79p per download in the UK is about $1.16 at April 2009 exchange rate, so 17% more than the 99¢ per download in the US) and also in terms of available choice. On 9 January 2008, however, Apple conceded that this was unfair practice and promised to harmonise prices with Europe within six months, citing the record labels' wholesale music price as the reason.