Chancellor Sajid Javid has decided not to act on recommendations to change the Retail Price Index (RPI) measure of inflation, leaving consumers to face unfair price hikes
The Chancellor has decided not to tamper with RPI as it is too “embedded” in the UK economy.
The RPI measure of inflation is widely discredited as inaccurate, and has since been superseded by both Consumer Price Index (CPI) and Consumer Price Index including Housing costs (CPIH) as more accurate measures of inflation by the UK Statistical Authority (UKSA) and the Office for National Statistics (ONS).
The Chancellor considered, but refused two recommendations from UKSA. Firstly, to abolish RPI altogether and cease publication. Or secondly, to change how RPI is measured to align it with the more accurate CPIH.
Unfortunately, Mr Javid declined both suggestions saying it could be “damaging to the economy and the public finances.”
Chancellor Javid. Source: UK Parliament
However, the Chancellor has committed to a review of RPI after a public consultation to better understand its uses, and potentially make changes between 2025 and 2030 with a view to potentially aligning RPI with CPIH.
Sir David Norgrove, chair of the UKSA, comments: “We have been clear that the RPI is not a good measure, at times significantly overestimating inflation and at other times underestimating it, and have consistently urged all – in government and the private sector – to stop using it. However, the RPI is unique as we need consent from the Chancellor to make certain changes, such as the one we have proposed.
“Although we regret that no change will occur before 2025, we welcome the Chancellor’s intention to consult on resolving current issues with the RPI.
“We continue to urge the government and others to cease to use the RPI. It would be wrong for the government to continue to use a measure of inflation, which it itself accepts is flawed, where it has the opportunity to change.”
RPI is used in a wide variety of ways and has especially come under criticism as many businesses use the measure to raise their prices. It is particularly hard on consumers who pay for such products and services as the RPI measure tends to be higher than both CPI and CPIH.
For instance, train firms annually raise their fares based on RPI. This leads to actual inflation-busting fare increases. In August this year, it was announced rail fares would increase by 2.8% in line with RPI measure on 14 August.
This is much higher than the most accurate inflation measure, CPIH, which measured a rate of inflation of just 2% in the latest update.
In other industries, such as mobile phone and broadband, RPI is often used in the same way to deliver above real inflation price increases for consumers.
RPI is also used as a reference index for some government debt.
What would happen to existing pensions which use RPI to calculate increases and formed part of your employment contract?
If the government wishes to…
If the government wishes to legislate to stop rail companies using RPI as the basis for fare increases, that's fine. But tampering with the method used to calculate RPI definitely isn't. I've already seen the inflation-linking applied to the contracted-out element of my defined benefit pension retrospectively amended from RPI to a maximum of CPI and I see no justification at all for any further retrospective degradation of my pension entitlement by imposing a less generous inflation measure to the part of my pension that still enjoys RPI increases.
Yet another useless Tory MP costing the "proper" public money you know the ones that do a proper job for a living not the ones who sit on their backsides a couple of moths a year and then spend months on "JOLLYS".
Same old excuse "LETS LEAVE IT FOR 5 TO 6 YEARS" and people will forget about it but you never forget when you need money do you for your rises etc or the magic money tree in "YOUR" back garden Mr money man.
RPI v CPI
Having fallen foul of the Goverment’s mis-selling of public sector pensions, they guaranteed me a pension with an annual RPI uplift and then tore up the contract the year I retired, I find it ludicrous that the Chancellor refuses to discontinue publication of RPI. The Governments position is that RPI is not an accurate measure of inflation yet allows their friends in the Private Sector to use non-accurate figures to raise prices especially the Utilities they sold off to the private sector. to be fair I don’t see Labour saying they will do anything different.