Outdated RPI hits consumers in the pocket as MPs urge Chancellor to fix flawed inflation measure now

Published by Rachel Lacey on 12 February 2019.
Last updated on 12 February 2019

Hammond

A group of MPs is calling on the head of the UK Statistics Authority (UKSA) to get consent from the Chancellor to fix a flaw in the retail price index (RPI) measure of inflation.

The retail price index is a measure of inflation based on the changing price of a representative basket of goods and services and is published monthly by the Office for National Statistics.

However, although the measure has been superceded by the consumer prices index (CPI) and has not been considered a ‘national statistic’ since 2013, it is still used by the UK Treasury in some areas.

In January, the Economic Affairs Committee concluded that a statistical error in RPI resulted in the index increasing artificially by 0.3 percentage points in 2010. This resulted in a £1 billion yearly windfall for index-linked gilt holders but meant consumers including students and rail passengers saw their costs rise.

In order to tackle this error, Rt Hon. Nicky Morgan MP, chair of the Treasury Committee and Rt Hon. The Lord Forsyth of Drumlean, chair of the UK Economic Affairs Committee have written to John Pullinger CB, UK National Statistician and chief executive of the UKSA, calling on him to seek permission from the Chancellor to fix the flaw.

Commenting on the letter, Mrs Morgan says: “As the Treasury Committee has concluded in numerous reports and statements over the years, RPI is a flawed measure of inflation, and it is absurd for the government to continue to use it.

“It appears grossly unfair that government formulae affecting people’s incomes, such as pensions and benefits, often use CPI, whereas formulae affecting outgoings, including student loans, often use RPI, which typically gives a higher rate of inflation.

“The Committee has previously urged the government to abandon the use of RPI, which has been de-designated as a national statistic. Failing this, the Chancellor should at least consent to UKSA correcting the known errors in the RPI formula.”

Lord Forsyth adds: “Our January report concluded that by not fixing RPI, the UK Statistics Authority could be in breach of its statutory duty to safeguard official statistics.

“The Authority told us they had not asked the Chancellor to approve fixes to RPI because they expected he would say no. The Treasury said they could not act because no request had been submitted. This is a ridiculous merry-go-round. 

“The UK Statistics Authority should submit a request immediately, and the Chancellor should consent.”

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There is a very good reason

There is a very good reason why we need to remember the saying "there are lies, dam lies and statistics". Politicians in particular will seek the creation of a set of statistics to demonstrate a point they wish to make, in defence of a policy or action they either have already made or wish to make, in progressing a particular objective that would otherwise gain no support. Hence, we should not trust politicians, nor the statistics invented to support their objectives. How about a good dose of common sense - oh I forgot - that's not permitted any more, in case somebody might be offended.

Err, which index is applied

Err, which index is applied to M.P.s pensions please?