Inflation — House of Lords, 2019-07-01
Topic: Macroeconomics
George Young (Conservative, Centre-right): We have moved the indexation of direct taxes, benefits, public sector pensions and the state pension from RPI to CPI. If that is wrong, I am sure a signal will come from the far end of the Chamber to put it right before I sit down I was dealing with the issue of index shopping and said that in April last year we brought forward switching the indexation of business rates from RPI to CPI. This move is expected to save businesses almost £6 billion over the next five years—at, of course, a cost to the public purse At Budget 2018 we outlined our policy on inflation statistics. Specifically on RPI, the Government committed to not introducing new uses of RPI and to reduce its existing uses when and where practicable. I note that the report encourages the Government to move all uses to CPI. However, the matter of practicability is key and further moves away would be complex. It has not been clear in recent years which measure of inflation it would be appropriate to use, although that picture is now getting clearer One sizeable area where RPI is used is in the Government’s index-linked gilts—a number of noble Lords mentioned this, including my noble friend Lady Browning— which are indexed to RPI. The Government have no plans to stop issuing index-linked gilts indexed to RPI. As the demand for RPI-linked debt is vast in comparison to CPI, particularly from the pensions sector—the largest holder of gilts by sector—the taxpayer gets far better value for money issuing into this market. Until such time as we can be satisfied that there would be sufficient demand for a new debt instrument, and that it would deliver better value for money, we will continue to issue RPI-linked gilts. As mentioned by the noble Lord, Lord Macpherson, demand for CPI-linked debt is growing. However, given that demand for RPI-linked debt is stronger, the Debt Management Office gets better value for money by continuing to meet this demand. However, in response to the noble Lord, Lord Macpherson, the issuance of new debt instruments is kept under review On the Government’s future use of inflation statistics, particularly in relation to CPIH, noble Lords have raised concerns over its suitability as a headline measure for the Government. Again, I pay tribute to the work of the ONS, led by John Pullinger. CPIH has undergone extensive development, choosing between different methodologies where necessary, and rigorous testing by the independent Office for National Statistics. This robust process has led to CPIH being approved as a national statistic, meaning that it is fully compliant with its code of practice for statistics. The Office for Statistics Regulation recommended to the board of the UKSA that CPIH be granted national statistic status, which is the highest kitemark of quality in our statistical system. Following this extensive development, at Budget 2018 the Government stated that their objective was for CPIH to become their headline measure over time The Government have not, however, set a date for CPIH to become their headline measure of inflation. This is because CPIH is a relatively new measure—a number of noble Lords touched on the issue of housing. CPIH has only recently been certified a national statistic, and it was only late last year that an updated historical back series was published, extending the series. With this back series in hand, work is now ongoing to understand its properties compared to CPI and RPI. The Government will regularly update Parliament on their progress towards using CPIH and, of course, on its broader strategy on inflation statistics Perhaps I may touch on some of the issues raised in the debate. The noble Lord, Lord Tunnicliffe, raised the benefits freeze. The decision to freeze most working-age benefits from 2016-17 was one of a number of difficult decisions that the coalition Government took to put the public finances back on track. We have no plans to repeat the freeze and we expect working-age benefits to rise with inflation from April next year The noble Lord, Lord Tunnicliffe, mentioned Sections 7 and 21 of the Statistics and Registration Service Act. Other noble Lords also mentioned the issue—the noble Lord, Lord Turnbull, in particular. We recognise the committee’s view on this and the Government will respond to the report in due course and on that specific recommendation. Changes to RPI are a matter for the independent UK Statistics Authority and the Office for National Statistics. That is a response to the suggestion that RPI could be incrementally corrected In conclusion, I recognise that I have not been able to go as far as noble Lords would have wished. The Government note that this report covers complex and wide-ranging issues, and makes a number of serious and sober recommendations to both the Government and the UKSA. Given the extensive use of RPI in the economy, the complex nature of some of those uses and their interactions, and, most importantly, the effect on people and the economy, the Government believe that it is necessary to take time to consider the committee’s report carefully before responding The Government recognise that RPI is a flawed statistic, and stress that they have not avoided acting on the issue. They recognise that further work must be done, but note that further moves away from RPI are complex. Further, the necessary work to prepare for CPIH is yet to be completed. I say to the noble Lord, Lord Sharkey, that the Government will respond as soon as practicable to noble Lords’ report and are working extremely hard so to do Finally, I will convey to the Chancellor the sense of frustration expressed by my noble friend Lord Forsyth and others about the time it has taken to respond to the report. I will personally relay that message.