Britain's problem isn't so much low wages as high prices

We have written a few times recently on theway in which many millions of people in the UK are both working and on benefits. This costs the taxpayer a fortune andsubsidises the payrolls of the world's big corporations -and can't feel that great for those in receipt of benefits, either.

One solution to the problem might be, as we have suggested in the past, to raise the minimum wage. But the real question, and the one we need to talk about urgently, is just why our economy is not able to produce jobs that will support a reasonable living standard.

I put forward a few reasons why this might be last week. It might be because our government focuses on almost nothing but keeping house prices up, I said. It might be because our crappy currency means that we constantly import inflation. It might be because our tax system is all wrong (see my posts on the location tax). It might be because the incentive schemes our big corporate managers work under push them to cut wages and staff before anything else (see my post on Andrew Smithers' view). Or it might just be a symptom of the fact that Western living standards are beginning a long and nasty fall.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

However, the idea that a key part of the problem is more to do with prices than wages is gaining some ground. Research out from the Centre for Business and Economic Research (CEBR) quoted in The DailyMail,now shows that the cost of living in Britain is 11% higher than the international average. It is 18% higher than in the US; 12% more expensive than Spain and 8% more expensive than Germany.

We are particularly expensive when it comes to the basic building blocks of astandard of living: transport is 31% above average and housing and utilities come in 18% above average. What does that actually mean?

According to Douglas McWilliams of the CEBR, it means that if we could bring the cost of UK goods and services down to bemore like the global average, the average UK household would save £2,000 a year. Not bad. So, next question, why are prices in the UK so high and what can we do to bring them down?

PS, Canada, New Zealand and Denmark are more expensive places to live than the UK, so if you are thinking of escaping the UK to set up home in a cheaper place, cross these three off your list.