22 August 2022

The real reason it’s cheaper to live abroad


If you’ve managed to get away on holiday this summer, you may have noticed that many things, like eating out, groceries and alcohol, are much cheaper in other countries.

Indeed The Telegraph even seemed to suggest this could be the answer the cost-of-living crisis – in an article with the hilariously tone-deaf headline ‘Why spending winter abroad could be the answer to your soaring utility bills’

In the author’s defence, the headline was somewhat out of sync with the actual article. It is not that Marie Antoinette is now writing for the Telegraph, wondering why poor families don’t simply go and spend half a year in their holiday homes in Spain, if they think Britain is too expensive. The article was more about documenting what some people are already doing: 

“[I]n April, [Google] searches for ‘move abroad’ soared to record levels. […] Belvin Franks, a financial advisor for expats, has reported a “considerable” rise in the number of Britons looking to leave.  

“People […] know they will have a much cheaper life abroad,” said the firm’s Jason Porter.”

For the majority of the population, it is not a realistic option. But for those who can do it, it can make a lot of sense:  

“In […] Malaga, […] two-bed apartments are listed for circa €600 (£507) a month. […] This is all before you factor in the lower price of groceries, eating out and boozing. Of course, inflation is also pushing up prices overseas, but as Porter said: “Countries like France, Spain and Portugal are starting from a much lower point because the cost of living was so much cheaper – and it still will be even if they have strong inflation.””

Whether we really will see an uptick in the number of people leaving the country remains to be seen. But to me, the article raises a rather different question: if it is so widely known that the cost-of-living tends to be much cheaper abroad – why do we simply accept that, as if it were an immutable iron law of nature? Why do we just treat it as an ‘obvious’ fact of life that living in Britain is much more expensive than living elsewhere? Because there is nothing obvious about this, and it does not have to be that way. There is nothing in the British soil, air or water which somehow makes things expensive.

Granted, The Telegraph article starts with a discussion of heating costs, which are, of course, less of an issue in countries with milder winters. Fair enough. But it then quickly moves on to areas where there is no such logical reason for large variations in costs, such as housing, retail, and the hospitality industry. 

In these and many other sectors, variation in costs is largely driven by variation in policy. If housing costs in, for example, Spain are lower than in the UK, then that is because they build a lot more houses than we do. If we wanted to match the Spanish housing stock in population-size-adjusted terms, we would have to build another 6.6 million homes. And this is just the residential housing stock. If you permit more building overall, you will also lower prices in sectors like retail and hospitality, because supermarkets, restaurants, pubs, hotels, sports venues etc will also face lower property costs. 

In addition, Spain’s beer duty is less than one tenth of the British level, spirits duty is less than one third, and wine duty does not exist there at all. 

It is not that Spain is exceptionally cheap: Britain is exceptionally expensive. On housebuilding and urban planning, Britain has one of the most restrictive systems in the world, which colossally inflates housing costs. On ‘nanny state’ lifestyle regulations, Britain is at the more restrictive end of the spectrum (although not exceptionally so: there are even worse examples), which drives up the cost of leisure activities the government disapproves of. Childcare costs in the UK are among the highest in the world, which is, again, largely driven by government policy. In areas like energy, trade and occupational licensing, Britain is no worse than most of its peers, but still needlessly drives up costs in a variety of ways. 

Britain’s high cost of living is a result of political choices. As my colleagues and I have shown in our paper ‘Cutting Through: How to address the cost of living crisis’, it would be entirely feasible to turn Britain into a place where the basics of life are easily affordable (although admittedly, there are no quick fixes). We cannot all move abroad, but we should look abroad for inspiration for cost-slashing supply-side reforms, and import the best of those. 

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Kristian Niemietz is Head of Political Economy at the Institute of Economic Affairs.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.