On June 13 2018, the RSS hosted an important and well-attended meeting on ‘The Future of the RPI’, bringing together many distinguished speakers, including the UK National Statistician John Pullinger (pictured), representing a broad spectrum of opinions.
Background
In 2011, the Office for National Statistics carried out a comprehensive investigation into one of the formulae (Carli) used in the compilation of the RPI and concluded it was flawed. However, a consultation in late 2012 showed an overwhelming majority in favour of keeping the RPI formulae unchanged so that the behaviour of the index was not altered. Acknowledging this, the National Statistician of the time decided not to change the formula and also to 'freeze' its compilation but at the same time to discourage its use. In 2013 the RPI lost its national statistic status. It remains, however, widely used.
‘The Future of the RPI’ meeting was organised after the outcome of court cases concerning the ability of pension funds (most notably BT’s) to switch from RPI to CPI links. RSS also noted the Government’s decision not to provide a legal over-ride for use of RPI in pension schemes. These developments reinforced the prospect of RPI remaining in widespread use for some considerable time. In such circumstances, it was appropriate to consider once again whether it was an adequate ONS policy for RPI to be left to, in effect, ‘wither on the vine’ or whether there was support for substantive changes to the RPI.
The extent to which the RPI is embedded in countless contracts, as well as the long-standing nature of many such contracts, means that it will inevitably be used for decades to come - barring complex (and, almost certainly, highly controversial) legal overrides.
An ONS article, published in March 2018, was regarded by some as having been very one-sided and it was criticised for having exaggerated the case against the RPI. This contributed to the, RSS decision to organise this meeting on RPI’s future. We were grateful when the National Statistician, John Pullinger, kindly agreed to speak at this event and to listen to other contributors’ comments and concerns.
Speakers
After a short introduction from the RSS vice-president for academic affairs, Guy Nason, the meeting was opened by John Pullinger. Then the following speakers gave their views:
- Kate Barker, chair, ONS Consumer Prices Stakeholder Panel
- Chris Giles, Financial Times
- Geoff Tily, chief economist, Trades Union Congress
- Simon Briscoe, T-DAB
- Johnathan Camfield, Lane Clark and Peacock
- Jill Leyland, consultant
- Martin Weale, professor of economics, King’s College London
- Huw Dixon, Cardiff University
- Kevin Russell, Unison
- Shaun Richards, economist
- Bill Wells, Retired UK government economist
- John Astin, member of the Advisory Panel on Consumer Prices (Technical)
- James Wintle, Wills Towers Watson
A wide range of views were expressed during the event but there was effectively complete agreement among responders that the current situation is unsatisfactory and that change is needed. The words “a mess” were used by many.
Some, but not all, speakers challenged the ONS view that the RPI is subject to a number of serious shortcomings. The widespread and continuing use of the RPI (particularly in pension funds) was stressed. Considerable emphasis was also put on the need for there to be clear and early notice of any substantive changes to the RPI, to allow suitable time for those affected to prepare for and adapt to them.
Next Steps
A number of possible changes were suggested including:
- Both modest and far-reaching reforms to the RPI
- Changes to the collection of clothing prices
- A full and scientific review of the formula issues
- Emphasis on the importance of continuing the HCI's development*
The RSS drew on the points raised during this very constructive and topical meeting when making a written submission, shortly afterwards, to the inquiry into RPI use which is currently being conducted by the House of Lords Economic Affairs Select Committee, (which includes - among other members - two former Chancellors of the Exchequer).
Contributions to the discussion can now be viewed here.
Here is a video of the event:
Our submission is now published.
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*In the RSS’s view, no one consumer price index can meet all user needs. In particular, different indices are needed for (i) macroeconomic purposes and (ii) measuring the impact of inflation on households. The ONS is currently developing the new Household Costs Indices (HCIs). Subject to their satisfactory development, we believe the HCIs could ultimately replace, or become an alternative to, the RPI.