Are retailers ripping off southerners?

McDonald's burgerMICHAL KAMARYT/Czech News Agency/Press Association Images

Retailers from supermarkets to restaurants and cinemas stand accused today of operating a 'price apartheid', ramping prices up in the South and cutting them in the North, so that Southerners pay more for everything.

So what's going on, and can this be fair?

Price gap

A report in the Daily Mail compared prices in Hull and Hammersmith, West London and revealed some startling price differences. The biggest was from the Odeon cinema, which costs £31.60 for a family ticket in Hammersmith and just £17.60 in Hull - a difference of 79.5%.

However there were other shockers, including one night in a Travelodge which was 70% more expensive in Battersea (nearest to Hammersmith) (at £85 instead of £49.95). Even budget brands cost more. A Greggs sausage roll was 29.8% more expensive in Hammersmith (85p compared to 60p), and a pint of John Smiths in a Wetherspoon was 30% more in Hammersmith (at £2.59 compared to £1.99).

So what's going on?

While it's interesting that the newspaper is branding this as a North-South divide, It's just as interesting that it goes on to argue that this a good reason for regional pay to be introduced in the public sector, which would mean those in the North receiving lower pay to reflect the lower cost of life.

Meanwhile, the retailers told the paper that the price variations reflected local costs and market conditions. It also reflects the cost of rents, rates and staff. On a very general level this could be argued to show that staff are cheaper up north and rents are more expensive down south, so prices - and therefore the general cost of life - is more expensive down south.

However, this misses the fact that prices are not set regionally, but on a far more local level.

Local differences

Picking Hammersmith, a relatively well-off area near the centre of Britain's most expensive city, and then comparing it to Hull, which is not without its economic problems, is too simplistic.

Take the cost of the Travelodge: if you travel much further south than London, and nip down to Taunton in the South West, you'll find the cost of a room is the same as in Hull. Similarly if you were to pop down to Bridgewater - also further south than London - you'll find the cost of that John Smiths is £1.99.

Even within London itself the cost of the basics varies. Buy a latte from the MacDonald's on Oxford Street and it'll set you back more than if you hop on the tube a bit further out of town.

Is this fair?

Of course, when you're forking out more money for the same sausage roll, or cup of coffee, it can feel terribly unfair. However, it's just basic business sense. It's a consequence of the fact that the cost of doing business in a more affluent part of the country is higher - rents cost more, staff demand higher pay - so the products need to be priced higher to make the same profit.

The North and South of England are not economically different countries, requiring broad brush policy decisions. Sophisticated businesses pare down the cost of selling a product to the specific store and then price accordingly. It makes perfectly reasonable business sense.

Government lessons

If the government learns anything from this study, it's not that Northerners are living the cheap life, and need to see their pay reduced, it's that if they are really going to be more fair, they are going to have to be a bit more sophisticated and make pay a very local issue, based on market trends, demand, talent, and the needs of the organisation in each area.

The question is whether the Public Sector can change its very nature and choose to leave local decisions to local experts, rather than imposing blunt instruments from the centre.

What do you think? Let us know in the comments.

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