Treasury committee urges Chancellor to allow RPI fix

MPs have urged official statisticians to ask for permission from the Chancellor to fix the "flawed" retail price index, which has led to train tickets and student loans growing by higher rates of inflation.

The House of Commons’ Treasury Committee and the House of Lords’ Economic Affairs Committee on Tuesday wrote to the UK Statistics Authority to seek consent from the Chancellor to fix the RPI formula.

Having previously urged the Chancellor to stop using RPI the two Committees called for him to consent to the UKSA correcting the known errors in the formula.

It has been argued that aligning the long-standing RPI to the newer consumer price index (CPI) could save the Treasury billions of pounds a year in debt interest payments, though gilts holders would lose out.

The main suggested improvement for RPI would be to stop averaging prices using the Carli index, which the Office for National Statistics has previously acknowledged has limitations and was "difficult to defend based on international practice".

RPI has been de-designated as a national statistic and in his last Budget, Chancellor Philip Hammond acknowledged that the use of RPI was unfair for business rates.

Research by the Economic Affairs Committee last month showed 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.

That committee's January report concluded that by not fixing RPI, the UKSA could be in breach of its statutory duty to safeguard official statistics.

Nicky Morgan MP, chair of the Treasury Committee, 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 CPI, whereas formulae affecting outgoings, including student loans, often use RPI, which typically gives a higher rate of inflation.

Lord Forsyth of Drumlean, chair of the Economic Affairs Committee, noted that the UKSA had "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."