Inflation

Debate between Lord Lea of Crondall and Lord Turnbull

Monday 1st July 2019 Lords Chamber

[Lord Turnbull (CB)]

My Lords, earlier today, the House confirmed my P45 from membership of the Economic Affairs Committee. I greatly enjoyed working under the chairmanship first of the noble Lord, Lord Hollick, and latterly that of the noble Lord, Lord Forsyth. It was also an exquisite pleasure to note the conversion of the noble Lord, Lord Forsyth, to the cause of social housing and—as we will hear—ultimately to more generosity in the provision of long-term care.

I want to take this opportunity to pay tribute to the work of the late Lord Jenkin of Roding, who had an enduring interest in the quality and integrity of national statistics. He was instrumental in passing the Statistics and Registration Service Act 2007, which brought about important changes to the governance framework. We have already seen some important interventions from the statistics authority where it has identified abuses or distortions; for example, the notorious £350 million claim in the Brexit campaign and its decision to alter the presentation of student loans in the national accounts to give a more accurate picture of the incidence over time of write-offs of debt.

Nevertheless, some significant controversies remain unresolved, some of which, as the House has heard, are of the statistics authority’s own making. Three steps brought them to a head. First, the then Government decided to specify the MPC’s inflation target using the CPI to bring us into line with the rest of Europe. They also explained that the CPI was running about 0.5% a year slower than the RPI. The switch allowed the Chancellor of the Exchequer to claim that he was targeting lower inflation without the Bank having to do much tightening. It also allowed him to tell Tony Blair, who was like the impatient boy in the back of the car and was disappointed that the five tests did not support entry into the euro, that we were getting nearer.

At that stage, the change was confined to the realm of monetary policy. The next event was around 2010, when the ONS made the now notorious change to the way in which clothing prices were collected, which had the immediate impact of widening the gap by another 0.3%. The ONS reviewed that outcome but surprisingly decided to do nothing about it. However, the statistics authority—I emphasise that it was the statistics authority; the noble Lord, Lord Lea, tried to claim that it was the Treasury or the Bank—then declared that the RPI was a very poor measure of inflation that did not have the potential to be developed into a good one. It would therefore go on publishing the RPI but no longer designate it as a “National Statistic”.

[Lord Lea of Crondall]

My Lords, although I attributed possible motive to the Bank and the Treasury, I said that my main concern was the lack of authority to put this adjective in front of it to say that it was discredited. On what basis can officials brief the press that the RPI is discredited?

[Lord Turnbull]

The basis on which that was done was that the statistics authority said it was flawed; that, I thought, was sufficient. Anyway, it said it would go on publishing the RPI and no longer designate it as a “national statistic” but rather, treat it as a legacy measure, with no further work to develop it. The chief statistician said there were many flaws with the RPI. For example, if it is used in the Carli index, which is a very simple test, if something goes up by 25% and then down by 25%, it does not end up where it started—the so-called time reversibility test. It said that it was not worth changing the treatment of clothing if it was not going to look at all the other issues.

This policy of spartan neglect proved controversial, provoking the inquiry by the EAC. Our conclusion was that RPI was deeply embedded in many aspects of economic life—on this we agreed with the noble Lord, Lord Lea—and it was wrong of the statistics authority and the ONS to just walk away from it. Indeed, it was argued that the statistics authority had a statutory duty—