From the TUC

ONS downgrades the Retail Price Index

13 Jul 2010, by in Economics

Since the Budget we’ve been agitating about the Coalition’s decision to use the Consumer Price Index instead of the Retail Price Index when calculating how much benefits need to rise to inflation-proof them.

As Nigel, Bryn Davies and I have been reporting, uprating benefits and tax credits by CPI will reduce their value and public sector pensions will be cut steadily over time by the switch to using the CPI for uprating; now we know that people with private pensions will also be affected, because the government will use CPI for price indexing.

So it is strikingly convenient for the government that today’s inflation figures from the Office for National Statistics hide the Retail Price Index figures on page 16.

Compare today’s Bulletin with last month’s, where the RPI is front page news. The justification, on page 10 of the Bulletin is that the decision to “refocus on one measure of inflation” has picked on the CPI because it “receives the most attention by users.”

Now, I know that the Treasury would like us to pay most attention to the CPI; they have been trying to persuade wage negotiators to do so for years – with very little success. Now that the switch to CPI for pensions, tax credits and benefits has been introduced as a “stealth cut” unions, anti-poverty campaigners and academics will be much more likely to demand easy access to RPI data so we can point out the difference between the uprating that takes place and the amount that should have been offered.

I don’t buy the justification for this change and I don’t think it has been thought through properly.

9 Responses to ONS downgrades the Retail Price Index

  1. Tweets that mention ONS downgrades the Retail Price Index | ToUChstone blog: A public policy blog from the TUC — Topsy.com
    Jul 13th 2010, 1:54 pm

    […] This post was mentioned on Twitter by John, ToUChstone blog. ToUChstone blog said: ONS downgrades the Retail Price Index http://bit.ly/9RlcA8 […]

  2. Allan David Cliff Warner
    Jul 13th 2010, 2:27 pm

    Please see my response to Nigel Stanleys’ blog on linking private pensions to the CPI. I would welcome your thoughts on my reply to to Nigel Stanleys’ blog also.

  3. Richard Exell

    Richard Exell
    Jul 13th 2010, 2:44 pm

    Dear Allan,

    I certainly agree that even RPI might under-estimate the increases needed by pensioners and benefit recipients. See my blog at: http://www.touchstoneblog.org.uk/2010/07/benefits-leave-people-in-poverty-and-government-policy-will-make-this-worse/

    Richard

  4. The Squeeze
    Jul 13th 2010, 11:09 pm

    If the major difference between CPI and RPI is housing costs, what on Earth makes you think housing costs are going to go up over the next decade?

    Everything points to the next leg of the Japan-style crash some of us were warning about during the heady days of the boom!

    PS. Boy George replied to Mervyn’s excuses letter in May saying he wanted housing costs included in CPI.

    PPS. RPI coverage starts on page 6.

  5. Richard Exell

    Richard
    Jul 14th 2010, 8:38 am

    Dear Squeeze,

    House prices may not go up but interest rates may and rents are very likely to rise. There are reasons other than the inclusion/exclusion of housing costs: see Bryn’s post for why the Treasury expects using CPI to knock 0.5 per cent off the rate regardless.

    If the CPI were changed to include housing costs that would obviously be a good thing; ity doesn’t look very likely.

    Yes the discussion of RPI begins on page 6, not 16, apologies for the error.

    Yours,

    Richard

  6. Jonathan Green
    Jul 14th 2010, 8:55 am

    Thanks for that post Richard, what do you make of the greater prominance given to “core CPI” in the commentary?

    Jonathan

  7. Richard Exell

    Richard
    Jul 14th 2010, 2:47 pm

    Dear Jonathan,

    Many trades unionists will recognise ‘core inflation’ as a Treasury obsession for many years when Pay Review Bodies are stting public sector wages; emphasising ‘core CPI’ may have a similar purpose – it’s useful for holding down wages. What do you think?

    Richard

  8. Jonathan Green
    Jul 15th 2010, 9:58 am

    I think that it is an extremely worrying development, especially in light of the recent budget. The linkage of benefits to CPI rather than RPI shows that the government is willing to save money from the poorest in society to cut the deficit. The argument was used that housing costs do not have the same impact for those on benefits, it is only a small hop and skip to the development of an argument that core CPI should be the measure used for uprating benefits (pensions?). I am not saying this is going to happen but it is worrying. This raises a secondary issue, why have ONS done it. The explanatory notes says it follows feedback from users, with the next review planned in October. We should all be paying more attention to the outputs from organisations like ONS especially in light of the fiasco over the OBR budget forecasts.

    Jonathan

  9. Measuring Inflation – the government faces authoritative criticism | ToUChstone blog: A public policy blog from the TUC
    Sep 2nd 2010, 6:07 pm

    […] The Royal Statistical Society has written to the UK Statistics Authority to call for a comprehensive review of inflation measures. The letter, from RSS President David Hand to Sir Michael Scholar (the Chair of the UK Statistics Authority) expresses concern about the way in which the Office for National Statistics concentrates on the Consumer Price Index, even though it is not the best index for all purposes – such as wage negotiations, where it is “not ideal.” The letter raises concerns about the way in which the ONS monthly inflation press notice now only headlines the CPI, leaving the Retail Price Index to the inside pages (a point we’ve also raised). […]