The Advisory Panel on Consumer Prices provided advice to the National Statistician on the composition of the Retail Prices Index (RPI) in light of the House of Lords Economic Affairs Committee report Measuring Inflation, published in January 2019.
Taking account of that advice, the then National Statistician concluded that the current position was unsatisfactory and put options for the future of the RPI to the UK Statistics Authority Board on 26 February 2019.
After receiving this advice, Sir David Norgrove, Chair of the UK Statistics Authority, wrote on behalf of the Board to the previous Chancellor of the Exchequer on 4 March 2019 with the following recommendations:
- that the publication of the RPI be stopped at a point in future; and
- in the interim, the shortcomings of the RPI should be addressed by bringing the methods of the CPIH into it.
Today the Chancellor has announced his intention to consult on whether to bring the methods in CPIH into RPI between 2025 and 2030, effectively aligning the measures. The UK Statistics Authority will consult on the method of making this change.
Speaking today, Sir David said:
“The role of the UK Statistics Authority is to promote and safeguard official statistics.
“We have been clear that the RPI is not a good measure, at times significantly overestimating inflation and at other times underestimating it, and have consistently urged all – in Government and the private sector – to stop using it. However, the RPI is unique as we need consent from the Chancellor to make certain changes, such as the one we have proposed.
“Although we regret that no change will occur before 2025, we welcome the Chancellor’s intention to consult on resolving current issues with the RPI.
“We continue to urge the Government and others to cease to use the RPI. It would be wrong for the Government to continue to use a measure of inflation which it itself accepts is flawed, where it has the opportunity to change.”
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.
- Under Section 21, Sir David Norgrove wrote to the Governor of the Bank of England on 18 February and the Chancellor of the Exchequer on 4 March, proposing:
- 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.
- His letters 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 Bank of England responded on 4 March to confirm changes proposed were material and detrimental to holders of relevant gilts.
- Following the appointment of a new Chancellor, Sir David Norgrove wrote to the Rt Hon Sajid Javid MP on 30 July 2019, highlighting the importance of the issue and the need to resolve at the earliest practical occasion.
- The Chancellor responded to the UK Statistics Authority’s proposals on 4 September 2019. In his response, the Chancellor announced his intention to consult on the timing of when to bring the methods in CPIH into RPI, effectively aligning the measures, to give users time to prepare for the many complex effects such a change will have.
- Sir David has responded to the Chancellor welcoming the intention to consult, while expressing regret that no change will occur before 2025. He has also urged users to cease using the RPI.
- In 2030 the requirement for the Authority to consult the Chancellor before making changes to the coverage or calculation of the RPI falls away.
- While the current Authority Board cannot commit its successors, the statistical weaknesses of the RPI make it unlikely that the Authority would take a different view from our recommendations in 2030
- The Authority has also published its response to the House of Lords Economic Affairs Committee.