CUSTOMER NEEDS - Prof.

Jorge Villagrasa Guarch ©

High wages but high rent: is London worth the

trade-off?
George Hodgson-Abbott, customer experience and analytics, Capgemini, UK

The conversation is a familiar one: a friend who has moved out of London comes to visit and is shocked at how
expensive everything is. He/she then espouse the wonders of its new home city declaring it to be cheaper than
London. You respond that the capital may be expensive, but wages are higher than elsewhere.

But are you financially better off living in London? Here are the maths:

Cost of living
The first thing is to look at how much the basics cost in each city. In our article, this includes a monthly rent
with its corresponding utilities and internet, a 30-days travel card and a 30-days gym membership. One thing
to note is that the cost of rent for London is calculated based on a one-bedroom flat outside the city centre,
whereas for the rest of the cities the cost of rent is modelled on a one-bedroom flat in the city centre.

There are not too many surprises so far — we already knew that London, Cambridge and Oxford were expensive
places to live. So how do these costs compare to the average wages in each city?

http://londonist.com/2016/02/high-wages-but-high-rent-is-london-worth-the-trade-off

1 Adapted by Prof. Jorge Villagrasa Guarch © - EDEM Centro Universitario

CUSTOMER NEEDS - Prof. Jorge Villagrasa Guarch ©

Income after taxes and disposable income

This is fairly easy! We just have to add the average income after taxes into the picture. Then, we will start
getting a wider perspective.

Interestingly, the average wages after taxes do not appear to correlate to the average cost of living for each
city. Hence, the difference in income and cost of living in Edinburgh (also called disposable income) is clearly
higher than in other cities, including London.

Cost of leisure (costs to go out and do things to enjoy in each city)

Before we draw a conclusion, it is worth noting that disposable income will only get you so far depending on
which city you are in. That is to say, if you had £300 in London and £300 in, say, Glasgow, then you would expect
that the £300 would go a lot further in Glasgow than in London.

In this way, to counteract its effect, we will need to adjust the actual disposable income to reflect how much it
is actually worth in the city you are living in. To do so, first we will compare the price of a pre-established set of
three leisure elements: “a three-course meal, four pints of beer and an adult cinema ticket” in each city with
the national average price, which is £43.11.

In the chart above we may observe the result of this calculation. Thus, for example, the total cost of “a three-
course meal, four pints of beer and a cinema ticket” in London (£58) is a 35% higher than the national average
(i.e., if £43,11 is 100%  £58 is X); and in Cambridge (£49) is a 14% higher than the national average (i.e., if
£43,11 is 100%  £49 is X).

At this point, we could use these percentages to adjust the disposable income with the cost of leisure in each
city so that we could easily compare the cities on a truly like-for-like basis.

http://londonist.com/2016/02/high-wages-but-high-rent-is-london-worth-the-trade-off

2 Adapted by Prof. Jorge Villagrasa Guarch © - EDEM Centro Universitario

CUSTOMER NEEDS - Prof. Jorge Villagrasa Guarch ©

Final disposable income (adjusted for the cost of leisure)

Thus… does living in London mean that you will be financially better off?

Well, it does not seem so. By these calculations, you would be almost three times better off living in Edinburgh,
and nearly twice as well off living in Cardiff, Sheffield or Belfast.

To better understand the results, next we will show the particular example of London:
- This city has an average cost of the basics of £1.450 and an average income after taxes of £1.950, which
generates a disposable income of £500. However, according to the text, we will have to adjust this quantity
to reflect how much it is actually worth in this specific city (-35%). After this calculation we get a total of
£325 (£500 – 0,35% x £500 = £325).
- Note that to avoid using a longer list of general/standard leisure things carried out monthly in every city,
the article uses only three (“a three-course meal, four pints of beer and a cinema ticket”) and takes out
comparative percentages regarding the national average.
- However, the same order of cities (though with different figures) would have been obtained in the chart
above if the article had subtracted the total cost of each list of three items in each city. Thus, in the example
of London, with a disposable income of £500 and a cost of the pre-established set of three leisure elements
of £58, we would have obtained a final disposable income (adjusted for the cost of leisure) of £442 – that of
course, it would have been closer to £325 whether the cost of all leisure elements, and not only three,
would have been subtracted from it.

Consequently, we will not buy a one-way ticket to Edinburgh just after reading this article, but next time there
is that conversation about where to live, we will be able to rely on arguments other than the level of wages.

Moreover, we must highlight that in order to decide where to live there are many other factors to take into
consideration such as: the unemployment levels in each city, the distribution of wealth, the immeasurable value
of living in a city you love, the closeness of your family, the existence of green areas and cultural services, etc.

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1. Why do we know that information?

http://londonist.com/2016/02/high-wages-but-high-rent-is-london-worth-the-trade-off

3 Adapted by Prof. Jorge Villagrasa Guarch © - EDEM Centro Universitario