The UK Statistics Authority and HM Treasury have today responded to the recently held joint consultation on reforming the methodology of the Retail Prices Index (RPI) by bringing the methods and data sources of the Consumer Prices Index including owner occupier housing costs (CPIH) into it.
The Chancellor has announced that while he sees the statistical arguments of the Authority’s intended approach to reform, in order to minimise the impact of reform on the holders of index-linked gilts, he will be unable to offer his consent to the implementation of such a proposal before the maturity of the final specific index-linked gilt in 2030.
In response, Chair of the UK Statistics Authority, Sir David Norgrove, said:
“We are pleased that the Chancellor acknowledges the statistical case for our proposed change to the RPI but regret the Government’s decision that the change should not be made before 2030.
It is UK Statistics Authority policy to address the shortcomings of the RPI in full at the earliest practical time. The change we propose can legally and practically be made by the Authority in February 2030.
We continue to urge the Government and others to cease to use the RPI, a measure of inflation which the Government itself recognises is not fit for purpose.”
The National Statistician, Professor Sir Ian Diamond, said:
“The RPI is not fit for purpose and we strongly discourage its use. The Authority’s proposal is designed to address its shortcomings by bringing the methods and data of CPIH into RPI.”
The full consultation response document can be found here.
Notes to Editors
- Under Section 21 of the Statistics and Registration Service Act 2007, before making any change to the coverage or the basic calculation of the RPI, the UK Statistics Authority must consult the Bank of England. Where proposed changes to the RPI are deemed material and detrimental to relevant gilt holders by the Bank of England, changes cannot be made without the consent of the Chancellor of the Exchequer.
- In 2019, the Authority proposed under Section 21:
- that the publication of the RPI be stopped at a point in future; and
- in the interim, that shortcomings of the RPI be addressed, by bringing the methods of the CPIH into the index.
- In making this proposal, the Board of the Authority drew both on the formal advice of the UK’s National Statistician, and on the advice of the National Statistician’s Advisory Panel on Consumer Prices.
- The UK Statistics Authority’s statement on the future of the RPI, published in September 2019, is available here. An article setting out the shortcomings of the Retail Prices Index is available here.
- On 11 March 2020, the Authority and HM Treasury jointly launched a consultation on the timing and method of bringing CPIH methods and data sources into the RPI. In light of the COVID-19 pandemic, this consultation was later extended to run until 21 August 2020.
- On 23 October, the Chancellor wrote to the Chair of the UK Statistics Authority notifying him that he intends to withhold his consent during the remaining life of the specific index-linked gilts.
- On 5 November, the Chair wrote to the Governor of the Bank of England to seek the greatest degree of clarity possible on the respective obligations of the Bank of England and the Authority under the Statistics and Registration Service Act 20017 were the methods and data sources of CPIH to be brought into the RPI in February 2030 (the Bank of England based its assessment on the assumptions that “no changes are made to the relevant legislation” and that the “definition of ‘relevant’ index-linked gilts remains unchanged”.).
- On 13 November, the Deputy Governor of the Bank of England responded to confirm that from 2030 the proposed change to the RPI should not have a materially detrimental impact on the interests of relevant index-linked gilt holders.
- On 20 November, the Chair responded to the Chancellor, informing him that the Authority would be able to legally and practically implement its proposal to the RPI in February 2030.
- Certain aspects of the proposed reform to the Retail Prices Index, the consultation, and the joint response are the subject of ongoing formal judicial review proceedings.