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Politicians say scrap RPI after gilt holders’ windfall of billions

Politicians are calling for the retail price index to be scrapped as a flawed inflation measure.

Last month, Economic Affairs Committee calculated that a statistical error in RPI caused it to artificially increase by 0.3 percentage points in 2010.

A letter from Treasury Select Committee chair Nicky Morgan and chair of the Economic Affairs Committee, Lord Forsyth of Drumlean, to the UK Statistics Authority states this error has meant a windfall for some at the cost of hardship for others.

“This has led to a £1bn yearly windfall for index-linked gilt holders, at the expense of consumers, like students who have seen the interest on their loans rise, or rail passengers afflicted by increasing fares.”

The RPI was previously superseded by the consumer price index but is still used by the Treasury in some areas.

Morgan and Forsyth urge UKSA it to seek permission from Chancellor Phillip Hammond to make changes to resolve the problem.

Morgan writes: “As the Treasury Committee has concluded in numerous reports and statements over the years, RPI is a flawed measure of inflation, and it is absurd for the Government to continue to use it.

“It appears grossly unfair that Government formulae affecting people’s incomes, such as pensions and benefits, often use CPI, whereas formulae affecting outgoings, including student loans, often use RPI, which typically gives a higher rate of inflation.

“The Committee has previously urged the government to abandon the use of RPI, which has been de-designated as a national statistic. Failing this, the Chancellor should at least consent to UKSA correcting the known errors in the RPI formula.”

Forsyth says: “Our January report concluded that by not fixing RPI, the UK Statistics Authority could be in breach of its statutory duty to safeguard official statistics.

“The Authority told us they had not asked the Chancellor to approve fixes to RPI because they expected he would say no. The Treasury said they could not act because no request had been submitted. This is a ridiculous merry-go-round.

“The UK Statistics Authority should submit a request immediately, and the Chancellor should consent.”

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