Liz Truss, chief secretary to the Treasury, has invited the UK’s statistical authorities to come forward with reforms to the retail prices index, saying it was their job to ensure it was calculated properly.
The index — used to uprate the £400bn index-linked government bond market, rail fares and student loans — had “ fundamental statistical issues”, said Ms Truss.
Officials, including Mark Carney, head of the Bank of England, have called for the index to be revised but the statistical authorities have been reluctant to make any changes, saying the Treasury would not back them.
Facing tough questions from the Lords Economic Affairs Committee on Tuesday, Ms Truss refused to say whether the Treasury would accept any proposals for reform, but indicated that change should be considered more seriously by the UK Statistical Authority, Britain’s official statistics regulator.
Since 2010, the RPI has overstated inflation because of an interaction between the way that clothing prices are measured and a core formula in the RPI, costing taxpayers significant sums.
The index is generally 0.7 percentage points to 1 percentage point higher than the consumer price index’s measure of inflation and the UKSA has said it is a “flawed measure of inflation”.
David Norgorve, chair of the UKSA, recently told the same Lords committee he would abolish RPI if he could, but he doubted the Treasury would accept any change he proposed to the index’s calculation.
Ms Truss did not reveal how Philip Hammond, the chancellor, would respond to any changes but said this should not inhibit the statistical authorities. “The UK Statistics Authority should be constantly reviewing how they calculate the RPI, making sure they do it in the best possible way,” she said.
“It is difficult for the chancellor to say ‘yes’ or ‘no’ to a request that hasn’t been submitted so I’m saying it is the role of the ONS [Office for National Statistics] to put forward that proposal and then due consideration can be made.”
Frustrated by repeated questioning over why she would not give an answer on reforming the index, she added: “The whole point of an independent body is you can’t have government ministers telling them what to do.”
Robert Steethman, chief executive of the Debt Management Office, which issues UK government debt, gave evidence with Ms Truss. He said he preferred RPI to be reformed rather than abolished, and added that he believed changing the index to make it more accurate was “do-able” so long as adequate notice was given.