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Peers demand RPI change

Peers demand RPI change

The House of Lords has demanded changes to the calculation of the retail price index, alleging the current method has enabled the government to act 'unfairly' when using inflation measures.

In report out today (January 17) by the Lords economic affairs committee, peers called for an 'error' in the calculation of the RPI to be fixed.

They also recommended using a single inflation measure to stamp out the process of "index-shopping" by the government.

The report admonished the UK Statistics Authority, which calculates the index, suggesting it could be failing in its "duty to ‘promote and safeguard the quality of official statistics’".

A statement to accompany the report said: "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 RPI."

The error in question was made in 2010 when the process for collecting price quotes for clothing was altered. It has resulted in the RPI being 0.3 percentage points higher since 2010. 

The committee stated the agency had defended its failure to correct the error by claiming RPI was a legacy measure that people had moved away from, whereas it was actually in current and widespread use.

It accused the government of "index-shopping" and choosing the measure that was the most financially beneficial to itself and the UK Statistics Authority enabling it to do so.

Lord Forsyth of Drumlean, chairman of the economic affairs committee, 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 RPI, which has been around 1 percent higher than CPI in recent years.

"This simply is not fair."

Debates around the measure of inflation have intensified in the pensions industry after a number of schemes tried to change the measure used from RPI to the lower rate of CPI to shrink their liabilities, and failed. 

In November the Supreme Court ruled he trustees of the Barnardo’s pension scheme will not be able to change the measure of inflation used for pension payments.

In his ruling, Lord Hodge said: "While, since 1991, the RPI has fallen from favour as an appropriate measure of the cost of living, it is not appropriate to use hindsight of such post-execution events to assess whether a provision makes good commercial sense."

Then in December the BT pension scheme lost its appeal against a High Court decision on this matter.

"This is not just a technical debate. The authority’s error created winners and losers," said Lord Forsyth.