Retail Price Index must be fixed, says Lords Committee

17 Jan 2019 03:40 PM

The Economic Affairs Committee publishes its report on 'Measuring Inflation'. The report considers the future of the retail price index (RPI) and its use by the Government.

Key findings

The Committee finds that the UK Statistics Authority is at risk of being in breach of its statutory duties on the publication of statistics, by refusing to correct an error that it openly admits exists in the Retail Prices Index (RPI). This error, made in 2010 when the process for collecting price quotes for clothing was altered, has resulted in RPI being 0.3 percentage points higher since 2010. As a result, commuters and students pay more because rail fare increases and student loan interest rates are linked to RPI, and holders of index-linked gilts at the time received an unwarranted windfall. The UK Statistics Authority has a duty to "promote and safeguard the quality of official statistics".

The Committee calls for the Authority to follow the procedure for correcting the error and, given that RPI remains in widespread use, resume a programme of regular methodological improvements.
 
The Committee also recommends a single measure of general inflation for use by the Government. This is to prevent so-called ‘index-shopping’ by Government, where indices are chosen because of their impact on the public finances rather than their merits as measures of inflation.

Chairman’s comments

Lord Forsyth of Drumlean, Chairman of the Economic Affairs Committee, yesterday said:

"When the Government gives money to people it is generally opting to adjust payments for inflation using the Consumer Prices Index. But when it takes money from people, it is generally opting to use the Retail Prices Index, which has been around one per cent higher than CPI in recent years. This simply is not fair. Together with the UK Statistics Authority, it needs to agree upon a single measure of general inflation which is used for uprating purposes. In the interim the Government should desist from 'index shopping' by switching to CPI in all areas not governed by private contracts, including index-linked gilts.
 
"The UK Statistics Authority's refusal to fix the problems it admits RPI has is untenable. By continuing to publish an index which it admits is flawed, it is arguably in breach of its statutory duty to promote and safeguard official statistics. It should seek to resolve the problems with the index, consulting the Bank of England and the Chancellor of the Exchequer where necessary, and stop treating it as a ‘legacy measure’ when it remains in widespread use.
 
"This is not just a technical debate. The Authority’s error created winners and losers. For example, commuters and students pay more because rail fare increases and student loan interest rates are linked to RPI."

Key recommendations

Further information