Northern Exposure is good for the Republic's consumers and economy

There has been a lot of bellyaching from business interests and some politicians about consumers heading to Northern Ireland to access cheaper prices and save money. Brian Lenihan pleaded with consumers to shop at home because by shopping in the North the state was losing revenue needed for investment in schools and hospitals. Firstly I will take Brian Lenihan more seriously on taxation when the massive tax loopholes which allow the super rich to pay little or no tax are closed off. In 2006 we learned that "between the 1999 tax year and 2003, a sizeable number of multimillionaires - 184 to be exact - declared incomes of more than €1m a year and paid no income tax at all." That's not to mention the approximately 3,050 tax exiles who live here for less than 182 days and pay no tax at all. Secondly individual and family incomes are under huge pressure from the high inflation, particularly in food costs over the last 2-3 years. On top of that people's incomes are being squeezed and indeed some being decimated as the result of job losses. The Government mantra was "shop around" and therefore any rationale or sane person would avail of the cheaper grocery prices in the North to help makes ends meet.

Of course the retail and business sectors have been trying to suggest that the Northern shopping phenomenon is all a media creation. The reality here is that if consumers went to Newry or Lurgan and didn't get value or found that the prices were not all that different they would just stop going. The fact that there are still travelling in large numbers indicates people are saving money and getting good value. Of course we had all the usual suspects blaming the high labour costs, rental costs, and any other costs they could think of. I heard a guy on Q102 in November justifying the difference in prices based on the back of an envelope exercise where he had compared rent costs in Dublin and Belfast and also labour costs. Somehow he appeared to think that this rip-off could be explained away on the basis of a few phone calls without any detailed or proper analysis of a whole range of underlying costs. Indeed he like none of the these apologists mention the lower corporation tax and the lower social insurance contributions employers pay here. Neither do they mention the strengthening euro which should be translating into cheaper prices.

Well finally some light was shed on this issue when before Christmas when Forfas published a report which clearly demonstrated that the price differential was not justified. They found that at most the price differential should be in the region of 5% not the between 16% to 31% difference found in independent studies of grocery prices. The Forfas report was based on information provided directly from retailers and most importantly showed that the cost of the goods is the key factor affecting resale prices, its states "the cost of buying goods for resale is the single biggest cost incurred by retailers and accounts for three-quarters to four-fifths of their total costs". So at last clear and independent evidence that labour, utility and rental costs cannot be used to explain away the huge price differences, the reality is that retailers were making significant margins and profits. I suppose the market will always charge what it thinks the consumer will pay and perhaps during the boom years enough (not all) people were willing to pay high prices.

However I think a lot of retailers and businesses were slow to respond to the changing economic circumstances that many consumers found themselves in early last year. They were killing off the golden goose they plucked so easily for a decade. And as a result people began to buy less, switch to the discounters and more recently go North.



Falling through the floor-hopefully prices will follow!

Obviously there are short term benefits for consumers in terms of saving money by heading North. However there are medium and long term benefits as well, not only for the consumer, but for our economy and society as a whole. Having such strong competition available cross border will force retailers and businesses here to reduce their prices and offer better value and service. We saw that to a certain extent over Christmas and New Year with the major reductions in some stores. I believe if retailers here are to regain and retain customers and market share they will have to cut prices.

We are always told that one of the greatest benefits of the EU is the single market and indeed the EU Consumer Policy actually promotes cross border competition stating "the potential therefore exists for deeper EU-wide retail markets. Opening up cross-border retail markets is the key to unlocking the potential of the retail internal market. As cross-border shopping develops as a credible alternative to national markets, consumers both have greater choice and national markets are subject to greater competition."

So contrary to what some politicians and retailers say this "Northern exposure" is actually a good thing. Yes we will lose some tax revenue in the short term, but in the long term for our society and economy, it has positive aspects because it will keep and hopefully force prices down and reduce the cost of living for all and make us more competitive.

Irish Consumers being "Pounded"

Got a call from Newstalk yesterday asking me to comment on their survey of the difference between the cost of clothes in euro on sale here and the price of the same items in sterling on sale in the North and in the rest of the UK. The results of their survey are as follows with the sterling price, the current euro price here and what the price should be based on the value of the euro against the sterling.

H&M

• Black Skirt - £19.99 - e29.90 (Exchange Rate e23.27)

Oasis

• Knee Length Coat - £75 - e113 ( Exchange Rate e87.29)
• Silver Knee Length Dress - £65 - e 94 (Exchange Rate e75.65)
• Black T-shirt with frill - £25 - e38 (Exchange Rate e29.10)

Ted Baker

• Multi coloured stripped shit £70 - e100 (Exchange Rate e81.47)
• Washbag £35 - e50 (Exchange Rate e40.67)
• Coat £85 - e120 (Exchange Rate e98.76)

I subsequently did a piece on their breakfast show this morning. This is not news to many of you I am sure, we are all sick and tired of seeing the sterling price and then the hugely inflated euro price. I pointed out that the euro prices are based on the 2007 value of the euro when the it was worth about 66p to 67p. The euro has strengthened considerably since the start of 2008 and is now worth about 85 pence sterling

When CAI raised this issue back in March we were told that there was a time lag and the currency fluctuations would be reflected in the prices after about 6 months, however almost a year later nothing has changed. There is nothing illegal about what these retailers are doing, but it is still galling. I suppose they are charging what they think we will pay. If consumers want to effect change, the best thing to do is to take your business to another shop or else go across the Border as many thousands are doing.

I know some people have said to me can I not pay in sterling to get around this, unfortunately this is a non-runner, there is no legal obligation on retailers to accept sterling. However both the media and consumer advocates can keep the pressure on by highlighting the difference and if consumers continue to vote with the feet the retailers will have to respond.