Inflation

Debate between Lord Forsyth of Drumlean and Baroness Browning

Monday 1st July 2019 Lords Chamber

[Baroness Browning (Con)]

My Lords, I support this report from my noble friend Lord Forsyth and his committee. There is very little that my noble friend and I disagree on. He trained me well when I was his PPS many years ago and I fully support the thrust of this report. The governance and probity of the UK Statistics Authority has quite rightly been called into question. The parts of the report that go into the legal basis for it leaving in place what is clearly an error as far in the RPI calculations must be addressed quickly.

As someone who takes a particular interest in disability benefits, over the years it has been a matter of great irritation to me—I put it no stronger than that—that there are winners and losers. As my noble friend described, the Government’s index-shopping is a sleight of hand; unless one is engaged every day in studying these types of statistics, the average person in receipt of this increase or decrease is probably not going to notice it in actuarial terms, but will certainly notice it in their pocket. Therefore, I support what the report is suggesting.

In Box 1.A of last year’s Budget report, it seemed that the Government recognised only too well that there is a fundamental problem here. They said that,

“the government will not introduce new uses of RPI”,

which makes me think that they are more aware of what needs to be done than they have indicated to my noble friend in correspondence.

[Lord Forsyth of Drumlean]

I am grateful to my noble friend. That may well be the case, but they did introduce a new use of CPI with National Savings.

[Baroness Browning]

Indeed. I used the phrase “sleight of hand” quite deliberately. Clearly, there needs to be some fundamental change here. The legal basis for the change is well set out in my noble friend’s report. I find it rather strange to be debating whether something that has been proven in law to be wrong should or should not be changed, and why there are so many reasons against changing it. A can-do approach by the Treasury is needed to bring about the committee’s recommendations.

I am not going to speak for long, although I should declare that I am one of those elderly pensioners in receipt of some government index-linked investments—a very modest holding. I do not know whether that will be good or bad. I think it has been bad already, but never mind—I have declared it to the House.

My noble friend said that at some point in the evidence session to the committee, somebody—I have forgotten who—said that they should be cautioned against market fragmentation of the gilts market, and my noble friend said that that was most unlikely. I share that view. However, in the two areas of gilts that are addressed in the report, one of those organisations already holds gilts with the dates as set out by previous speakers, and that particular group needs to be addressed. With the future issuance of gilts, if there is just one rate it also means that anybody looking at it to decide whether it is a good investment would at least know where they stood.

I would also like my noble friend to bear in mind that, for investments and savings generally, we are in an age of trading by algorithms. Huge sums of money are moved around in nanoseconds. Whether it is the manager of a corporate pension fund or the individual being given financial advice about quite a modest investment, gilts have for many years been the foundation of good advice. The fewer assets people have, the more they are recommended to have a higher holding of government-based investments rather than the equity-based ones which have the higher risk, which we would all be familiar with.

The way in which the changes to gilts are brought about, as outlined in this report, needs some careful handling. It would be detrimental to best advice and best interests, for the corporate and individual investor and the reputation of gilts, if the changes that are clearly necessary resulted in people becoming nervous or not feeling it worth while to have at least a floor of that type of investment, particularly when it is a mixed investment. Over the years, we have seen fewer people prepared to take smaller returns on investments; they have what is almost a cavalier approach to savings and investments. Gilts have played a very big part in securing what most people would recognise as best advice. The changes are necessary for those who already hold gilts and those who will consider newly issued gilts. I hope it will be understood that the security of gilt-edged investments is an important part of that good advice, which our financial services market has relied on for many years.