Retail Price Index
The NPC would like to share with you our recent submission for the consultation on the reform to the Retail Price Index methodology. With thanks to the hard work put in by our Pensions & Income Working Party
RPI Consultation
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Introduction
The National Pensioners’ Convention (NPC) is Britain’s biggest independent organisation of older people, representing around one thousand local, regional, and national pensioner groups with a total of 1.5 million members. The NPC is run by and for pensioners and campaigns for improvements to the income, health and welfare of both today’s and tomorrow’s pensioners and this response is based on the views and experiences of our members. We wish to submit these views to the RPI Consultation Team.
Consultation
Pensioners currently have to deal with conflicting Price Indices, used extensively to represent levels of inflation. Some occupational pensions are linked to CPI, some to RPI, and the state pension to the triple lock. Many price increases are linked to RPI such as utilities, rail fairs etc. Also, government bonds are linked to RPI. What we need is a universal inflation index that compensates pensioners fairly, still maintaining the triple lock, and ensures that price increases are on the same basis.
Most of the documents covering Price Indices, that originate from the ONS just consider CPI, CPIH and RPI and are clearly assuming that CPI and CPIH are correct and RPI is flawed with an upward bias. They base this observation simply on the use of Carli in the RPI and Jevons in the case of the CPI and the CPIH which apart from the inclusion of Housing in CPIH are essentially the same
Much of the arguments used in this submission are based on private observations contained in correspondence. Fortunately, the Approved Judgment of the BT Pic versus the BT Pension Trustees Court Case of 19 January 2018 1 gives a ready source for this information and we are using this document as the main source of reference material.
1. The Approved Judgment of the High Court of Justice Chancery Division in the case between British Telecommunications PLC (The Appellant) and BT Pension Scheme Trustees (Respondents) dated 19 January 2018, endorsed by the Court of Appeal heard in the Chancery Division of the Royal Courts of Justice whose Approved Judgment was dated 4th December 2018
ORIGINS OF THE CONSUMER PRICE INDEX (CPI) AND THE RETAIL PRICE INDEX (RPI)
The CPI Index
CPI was introduced in 1996 as the harmonised index of consumer prices (HCIP) in response to EU regulation 2. However, in a paper titled, "On the variations in the inflation experience of UK households (December 2014)" the ONS stated that:
"CPI is not a suitable measure of inflation experienced by the median household 3."
Following on from a consultation in 2015 the United Kingdom Statistics Authority (UKSA) issued a paper: "measuring consumer prices: the options for change (dated June 2015)" and stated that:"
The CPI was compiled solely for comparison between EU countries.... It was not designed to measure inflation from a household perspective 4. "
More importantly the paper went on to state:
"Nearly all EU countries, and all the major ones, used their own national indices as their main operating index. The UK would therefore be out of line with most international practice if it adopted the CPI or a close derivative such as CPIH as its main operating index".
The case for the CPI is therefore very insecure.
The RPI Index
RPI is the UK's oldest price index. According to a paper produced by the ONS in 2010, it began life as a compensation index, developed as an aid to protect ordinary workers from price increases associated with the First World War. RPI was made an official inflation measure in 1956 5.
In the same ONS paper as that referred to in reference 3 it is stated that:
"the exclusion of the top 4% of households by income, and of pensioners mainly dependent on state benefits, means that it (The RPI) is noticeably closer in practice to a household weighted index than the CPI"
The argument used by the ONS that the RPI is flawed with an upward bias needs to be examined.
2. Reference 1. Paragraph 106
3. Reference 1. Paragraph 162
4. Reference 1. Paragraph 161
5. Reference 1. Paragraph 105
WHICH IS THE BETTER MEASURE OF INFLATION
In her response to the National Statistician's 2012 Consultation Dr Ros Altmann, the Director-general of Saga at the time of the Court Case, made the following point 6.
"with all statistics there is no perfect measure, all are estimates, and whilst the ONS suggest that RPI is wrong, there was a real possibility that the CPI measure might be under-recording domestic inflation.