Post-Budget consultation on RPI change

The government is to consult on a change to the way the retail prices index (RPI) is calculated, following a lengthy campaign by MPs, who said a statistical error means this measure of inflation is flawed

The Treasury Committee and the House of Lords’ Economic Affairs Committee have both been urging the UK Statistics Authority (UKSA) to get the Chancellor to approve the overhaul of RPI.

A report from the Economic Affairs Committee published a year ago revealed a statistical error in RPI which 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.

At the time, committee chair Lord Forsyth said: ‘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.’

Both committees said it appeared ‘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.

Now the Chancellor, Sajid Javid has written to the chair of the House of Lords Economic Affairs Committee, copied to the Treasury committee, announcing a joint consultation between the government and UKSA on a proposed change to address the shortcomings in the RPI.

This will look at whether the proposed correction should be made at a date other than 2030 and, if so, when between 2020 and 2030.

The consultation had been scheduled to launch this month. However, following the general election and the Chancellor’s confirmation of the Budget date, the consultation will be launched at the Budget on 11 March.

It will be open for responses for six weeks, closing on 22 April. The government and UKSA will respond to the consultation before the Parliamentary summer recess.

Chancellor’s letter to Lord Forsyth

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