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Pensioners’ relief as government sees sense on RPI, with hopeful signs of wider U-turn on statistics

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The usually obscure world of inflation measurement has hit the headlines after the government defied businesses lobbying on pensions increases and a prominent MP demanded an overhaul of inflation measures.

Yesterday the government said it would not let company bosses cut pensions increases from retail prices index (RPI) inflation to the typically significantly lower consumer prices index (CPI) inflation, without members’ consent. Meanwhile, the Financial Times reports today calls for a wider review of the position on inflation statistics.

These are both positive developments that could stop inflation measures being gamed to the disadvantage of working people and taxpayers.


Yesterday’s announcement was made in the defined benefit pensions white paper – ‘protecting defined benefit schemes’. The government observed the scale of the amounts involved:

… we estimate that on average the impact per member over their lifetime, on average, could be a reduction of broadly £12,000. This could be a significant proportion of a member’s planned retirement income. (para 216)

Ministers have sided with pensioners and unions against the lobbying of a number of employers and pensions providers to make pension funding easier (and shareholder payouts higher) by allowing them to defy scheme rules and switch to pension increases based on CPI inflation. The massive cash amounts follow because the norm is for the CPI to be significantly below RPI – by an average of 0.9 percentage points over the past five years.

We reported last month on how the rejection in court of BT’s attempt to switch from RPI to CPI led to wider calls for a statutory over-ride.  The government rejected this in a definitive manner.

Having carefully considered the financial impacts and the consultation responses we have concluded that we cannot accept any reduction in the value of member benefits and are therefore ruling out provision of a power for employers or trustees to change scheme rules so that schemes can apply inflation increases using CPI instead of RPI. (para 217)


In the White Paper the government were also careful when they addressed inflation measurement. Rather than going as far as some critics – including the Governor of the Bank of England who recently suggested “most would acknowledge, [the RPI] has no merit” - they offered the more neutral.

We are of course aware that RPI is no longer endorsed by the Office for National Statistics (ONS) and that ONS now counts CPI(H), which includes housing costs, as its preferred measure of inflation. (para 219)

Just a couple of weeks ago John Pullinger, the boss of the ONS, in a foreword to a paper on these issues, stated that “RPI is a very poor measure of general inflation”. 

The trade union movement has argued (with others, notably prominent members of the Royal Statistical Society) that these criticisms of RPI are ill-judged and on intellectually weak foundations (see for example here). Yesterday there was concrete evidence that these concerns extend to Parliament.  The Financial Times reports (here – firewalled I fear) remarks by Bernard Jenkin, the Conservative MP who chairs the Commons Public Administration and Constitutional Affairs Committee:

The UK Statistics Authority needs to clear up issues around the calculation and governance of the various measures of inflation.

 “No major country relies entirely on one measure and the UK too has needs for more than the CPI. So I am in favour of a review of all measures”.

They also report Jenkin arguing that the

… consumer price index, which is used by the Bank of England to target inflation, had some strengths and weaknesses. He added that RPI was still important because it is used in many contracts, especially pensions.

The TUC wholeheartedly support this call for a review of all measures, and the recognition that the ONS position on inflation measurement has not been satisfactorily resolved – in spite of immense efforts on all sides. And we agree with Jenkin that while there may be problems with the RPI, there are also problems with the CPI. Though obviously the government are hardly beyond reproach here, as they have repeatedly gamed their use of inflation measures so that the public tend to receive CPI (e.g. on benefits and public sector pensions) and pay RPI (e.g. on student loans and duties on alcohol). 

It is to be hoped that the statisticians seize the initiative and review matters in the full way that the issue demands, given the immense importance of inflation measurement to people’s incomes and well-being.

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