The pound in your pocket is not worth what you think

Citation

Bon, M. (1999), "The pound in your pocket is not worth what you think", European Business Review, Vol. 99 No. 2. https://doi.org/10.1108/ebr.1999.05499bab.006

The pound in your pocket is not worth what you think

Letters to the Editor

The pound in your pocket is not worth what you think

From Mark Bon, European Fund Manager, Canada Life, London ­ 8 December 1998

The count-down to the euro has begun, but do we in the UK realize just how much we will be missing out? If this country was to adopt the euro on 1 January, instead of watching on the sidelines, every man, woman and child in the UK would be at least £1,000 better off. That is a lot to pay for the privilege of keeping the pound. When we consider that, in 1998 figures, The Economist calculates that the GDP per capita in the UK is only £11,423, then this is the same as saying we would each be 8.7 per cent better off. If Gordon Brown told us we should all pay Eddie George, the Governor of the Bank of England, 8.7 per cent of our income, for him to have the privilege to keep his job, the public's reaction would be very different from the present apathy.

While we in the UK pay 6.75 per cent interest rates, Euro-members will be paying only 3 per cent. This has a major impact on anyone paying a mortgage. For example, if you had a £40,000 mortgage, you would save about £1,900 per annum and so it increases as the size of your mortgage rises. If your mortgage was £60,000 you would save nearly £2,800 and someone with a mortgage of £150,000 would save a staggering £7,200 per annum.

The cost to the UK public of not joining the euro is high even if you do not have a mortgage. How many times have you heard someone tell you about how exactly the same products in Europe cost less than they do in this country? I've lost count how many times Jeremy Clarkson has told us about cheaper car prices; well the same goes for computers, designer clothes, wine, beer and tobacco. However, the problem seems even bigger than for just these few product categories. A study commissioned by the European Investment Bank, Dresdner Kleinwort Benson, suggests that a basket of the same goods purchased across Europe is at least 15 per cent lower than it is here in the UK.

These price distortions are of course a product of the lack of competition in the UK retail industry and because we have no easy comparison with our neighbours across the channel. If the UK joined the Euro, these price differences would become transparent and an adjustment process would be forced on to the fat cat retailers.

I can hear the euro sceptics already starting to say, what about our lower tax rates in the UK? If we joined the Euro we would have to pay higher taxes. Personal tax rates are lower in the UK but, even when adjusting for this effect, we would still be much better off if the prices of goods in the shops were 15 per cent lower and if our mortgages were half the cost.

So next time someone asks you, would you be better of with the pound in your pocket instead of the euro, say No, I'm out of pocket by at least £1,000 and maybe more.

(© Mark Bon, Canada Life)