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Government body succumbs to pressure from statisticians to recognise drawbacks in consumer prices index as a measure of real-world spending
The UK's main statistics body, the Office for National Statistics, has agreed to investigate using alternative measures of inflation to apply to the calculation of benefits and pensions, after critics labelled the government's preferred index as flawed.
Pressure from the Royal Statistical Society (RSS), the professional body representing statisticians, has forced a climbdown after months of resistance. Ministers plan to save billions following a shift from the retail prices index (RPI), which includes rent and mortgage payments, to the consumer prices index (CPI), which has averaged 0.7% lower over the last decade. Accountant KPMG has estimated that private-sector and public-sector pension savers will lose up to £250bn over the next 40 years in lost inflation-linked rises.
Benefit claimants are also expected to lose out as their payments track inflation pegged to the lower CPI.
Unions calculate that workers in final salary pension schemes could lose 15% of retirement income following the move to CPI. Brendan Barber, the TUC general secretary, said: "The RSS is an establishment body that rarely likes to rock the boat, but it rightly feels strongly about this issue. It is absolutely right to say the CPI is not a measure of anyone's cost of living.
"While it might make sense as a target for the Bank of England, that doesn't mean it's fit for purpose for indexing pensions or benefits."
The TUC said the ONS and its regulator, the UK Statistics Authority, should show their independence from ministers by providing a range of inflation measures that more closely match the spending patterns of pensioners and people on low incomes.
Benefits and pensions went up in April in line with September 2010's CPI inflation figure of 3.1% rather than the 4.6% RPI figure. Under the RPI, jobseeker's allowance would have risen to £68.60 a week compared with £67.50 under CPI.
The RSS told officials at the ONS earlier in the summer that the CPI measure failed to represent the spending patterns of people on low incomes or pensioners.
The UKSA wrote to the RSS earlier this year to say that it was a decision for ministers to adapt or change how inflation is calculated.
A spokesman said: "The authority is to ensure that such statistics (including indices) are produced to appropriate standards; the authority cannot be involved in the political or business decisions informed by those statistics unless the integrity of the official statistics concerned is being damaged.
"Questions about compensation, who to compensate and what for, are straightforwardly political questions, not for statisticians. The Statistics Authority wants the best index for prices, and we want the CPI to be improved in the ways that the authority has already set out."
The UKSA has agreed to adapt CPI to include owner-occupied housing costs, which are currently part of the RPI measure.
Officials at the ONS told the RSS at a recent meeting that they will investigate how much different sections of society experience rising costs.
The RSS said that while the inclusion of housing costs into CPI would be a step forward, fuel and basic foodstuffs account for a higher proportion of pensioner spending, while low-income families face higher costs associated with children, commuting and clothing.
A spokeswoman said the UKSA had failed to grasp the issue. She said she was hopeful that the ONS would conduct a thorough review and present an independent report.
"CPI is fine as an indication of inflation for macroeconomic purposes and the Bank of England. But it is a harmonised index of prices with the purpose of comparing inflation in different countries. It was not designed to show how rising prices affected different interest groups," she said.
- Inflation
- Office for National Statistics
- Economics
- State benefits
- Public sector pensions
- State pensions
- Public services policy
- Pensions
Phillip Inman
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