Call to end ‘ridiculous merry-go-round’ on RPI formula

The chairs of two influential Parliamentary select committees have stepped up their campaign to force a change in the way in which the retail price index (RPI) is calculated, to correct a statistical error which means this measure of inflation is flawed

The House of Commons’ Treasury committee and the House of Lords’ economic affairs committee have urged the UK Statistics Authority (UKSA) to seek consent from the Chancellor of the Exchequer to fix RPI.

An economic affairs committee report published in January revealed a statistical error in RPI caused it to artificially increase by 0.3 percentage points in 2010, leading to a £1bn yearly windfall for index-linked gilt holders at the expense of consumers such as students and rail passengers.

 In evidence to the inquiry, UKSA told the committee they had not asked the Chancellor because they expected he would say no. The Treasury said it could not act, because no such request had been submitted. The committee concluded that such a request should be submitted, and the Chancellor should consent.

Now Nicky Morgan, chair of the Treasury committee, and Lord Forsyth, chair of the economic affairs committee, have written to John Pullinger, UK national statistician and chief executive of UKSA on the topic.

The chairs have called on UKSA to write to the Chancellor for permission to correct the error and have urged the Chancellor to grant such permission.

Morgan said: ‘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 the consumer prices index (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 said: ‘Our January report concluded that by not fixing RPI, UKSA 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 select committees’ joint letter to UKSA is here.

Report by Pat Sweet

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