A:

According to Numbeo, the largest collection of cost of living data for destinations around the world, consumer prices were 29.51% higher in the United Kingdom than the United States as of August 2014. However, comparing the cost of living between the two countries is not so straightforward.

Measuring Cost of Living

When economists or statisticians measure the "cost of living" for a given country or region, they review the amount consumers need to spend to reach a certain average standard lifestyle. Put another way, the cost of living measures how much food, shelter, clothing, healthcare, education, fuel, etc. can be bought with one unit of currency. To account for differences in purchasing power between the U.S. dollar and the U.K. pound sterling, it is useful to express prices for both countries in terms of dollars.

For instance, the average U.K. driver spends £1.37 per liter of gasoline, which is the equivalent of $2.27 as of August 2014. By comparison, the average U.S. driver pays $0.96 for the same liter of gasoline. 

Prices in the United States and the United Kingdom

Break down the average prices for various goods and services in the United States and the United Kingdom and you see that British consumers face a higher cost of living in almost every area. They pay 15% more for rent; 12% more for groceries; 50% more for restaurant meals; 52% more for utilities; and 135% more for gasoline, based on figures provided by Numbeo.

Comparing costs for larger items, such as education and healthcare, is more difficult. This is because most consumers do not directly bear these costs in full. Government-provided services are indirectly paid for through taxation, and private services are often subsidized.

According to The Economist, the National Health Service in the United Kingdom spends far less per person than the American healthcare system. While the average cost per person is less in the United Kingdom, the net cost to the average consumer/taxpayer is more difficult to quantify.

Other Problems

One issue with looking at national cost of living averages is that prices can vary significantly within a given country. As an example, there is a larger difference in the average cost of living between Chicago and New York City than between New York City and London. Part of this can be explained by size differences. The United States is more than 40 times the size of the United Kingdom (3,794,000 versus 94,000 square miles) and has approximately five times the population.

Additionally, cost of living averages do not address the quality of the goods or services available. It could very well be that shoes cost 25% more in one country than in another, yet last 50% longer. Perhaps food prices are the same between two countries, but on average the food in Country A tastes better and is healthier to consume than food in Country B. Nevertheless, the data suggest it is relatively less expensive to live in the United States than in the United Kingdom.

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