Retail Prices Index

Wednesday 24th April 2013 Lords Chamber

Question

15:06

Asked By

[Lord Naseby]

To ask Her Majesty’s Government why the UK Statistics Authority overruled the recommendation and decision of the Office for National Statistics, following public consultation, to keep the Retail Prices Index as an official national statistic and whether they intend to challenge its downgrading.

[Lord Wallace of Saltaire]

My Lords, the board of the UK Statistics Authority accepted the recommendations of the National Statistician both to produce a new index, to be known as RPIJ, and to retain the RPI as it is currently constructed. RPIJ is constructed in a way that meets current international standards whereas RPI was judged not to meet those standards. Because of this, the designation of the RPI as a national statistic was removed by the UK Statistics Authority, following a statutory reassessment which confirmed the finding of the National Statistician’s consultation that its formulation failed to meet current international standards.

[Lord Naseby]

Is my noble friend aware that this is a UK statistic and that international standards on statistics are, frankly, a little irrelevant? After all, is it not the case that the Office for National Statistics changed its mind from the original proposition, based on strong representations from finance, commerce, industry and savers? In the light of that, will my noble friend make further suggestions to the UK Statistics Authority that it thinks again and puts that badge of quality back on the RPI?

[Lord Wallace of Saltaire]

My Lords, I was not aware that either mathematics or statistics differed according to national boundaries. The only statistics course I took was in the United States. I should have thought that international standards—those of Eurostat, the International Labour Organisation and the IMF—are standards that the UK should follow without wishing to bring the defence of national sovereignty or hatred of the European Community into account.

[Lord Peston]

My Lords, does the Minister agree— I am sure he will agree as his background is similar to my own on this matter—that there is no such thing as a perfect price index—far from it? Those of us who taught the subject spent all the time explaining why there is no such thing. Is it not for the Government to explain what they want to use this particular index for? Is it to measure the inflation rate, in which case the RPI is not, in my view, the right index and the GDP deflator is, or is it to measure the cost of living? Even then, they have to answer the question: whose cost of living? Does the Minister agree with that?

[Lord Wallace of Saltaire]

My Lords, I have gone back into the area of statistics and I am happy to tell the House that there is a range of different measures of inflation in Britain—the RPI, RPIJ, RPIX, which excludes mortgage costs, and the RPIY, which excludes tax changes. Then there are the CPI, CPIH, CPIY and CPICT. I hesitate to explain all these in detail to the House.

[The Lord Bishop of Ripon and Leeds]

My Lords, what advice does the Minister have for those widespread organisations which have historically used the RPI to alter pensions and salaries? They are unclear as to which of the various measures that the Minister just mentioned they should use for those purposes.

[Lord Wallace of Saltaire]

My Lords, they should not be unclear. The decision to maintain the RPI was taken precisely to leave clarity on the various forms in which the RPI is used as a reference point. I am quite clear from what I have read that the RPI as measured has an underlying upward bias of currently about 0.9% a year above CPI. That means that the Government end up paying more for index-linked bonds and elsewhere, which, in the long run, is against the interests of taxpayers although very much in the interests of investors and pensioners.

[Lord Barnett]

My Lords, the problem is not whether the Minister agrees with my noble friend Lord Peston. Is not the real problem with all these statistics whether anyone believes any forecast of anything? Is not the problem therefore not which is used but believing them?

[Lord Wallace of Saltaire]

My Lords, we could try giving up and steering in the dark if we want to, but trying to assess as well as we can what is happening in our economy and in the economies of our partners is a necessary part of the way we have to operate. We recognise that all measures will be imperfect. The decision to make changes in the RPI was taken to make it a little less imperfect than it was.

[Lord Lawson of Blaby]

My Lords, as the Minister who, a little over 30 years ago introduced RPIX, is not the most important thing to forget about all these indices and just to keep inflation really low? Then the difference between these indices is neither here nor there.

[Lord Wallace of Saltaire]

Digging into this, I am told that one of the problems is the way in which the RPI was estimated. They changed the way in which they calculated changes in the pricing of clothing, which got more and more difficult as discount stores were adopted. That is why the gap between CPI and RPI has widened in the past four or five years. That has a substantial knock-on effect for the Government, the Exchequer and for consumer prices.

[Lord McFall of Alcluith]

My Lords, in order to overcome the notion of dodgy statistics, the Minister will be aware that Parliament set up an independent body in the UK Statistics Authority which was first chaired by Sir Michael Scholar. As a result of that, he and others have resisted the massaging of statistics by politicians. Is not the UK Statistics Authority a bulwark to prevent the massaging of statistics by politicians? Therefore, we must commend the work of the UK Statistics Authority and resist any breach of it by politicians or others.

[Lord Wallace of Saltaire]

My Lords, one of the best things done in this area by the previous Government was to establish the UK Statistics Authority as an independent body. The decision was criticised on all sides. Some noble Lords will remember the article in the Financial Times by Chris Giles which said that it was appalling not to have abolished the RPI and move all the way towards the CPI.

[Lord Howell of Guildford]

Did the Minister notice the other day that Sir Mervyn King, the outgoing Governor of the Bank of England, said that one of the main contributors to rising RPI and therefore rising inflation was higher energy taxes? Every time the RPI goes up, it generates a gigantic increase in public expenditure through indexed provisions in the public sector. Could he possibly advise his friends to think again about some of the higher taxes that are being piled onto our energy costs in industry and in the home?

[Lord Wallace of Saltaire]

My Lords, the noble Lord is quite right to say that the extent to which tax increases are factored into the calculation of inflation is one of the problems. If you are not careful, when inflation is rising, you get into a positive feedback as mortgage interest rates rise, and that increases the measurement of inflation.