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The statistical authorities abandon their duty to protect the RPI

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“The publication of the RPI be stopped at a point in the future”, the UK statistical authority pronounced (UKSA) yesterday in this of all weeks.

Trade unions have opposed discarding the RPI since the attacks began in 2012. Our position was set out again for the latest of countless consultations:

The TUC categorically reject the charge that the RPI is fundamentally flawed. We call for an end to the constant attacks on the integrity of the RPI, and instead for the implementation of a positive initiative to renew the measure so that national statistic status can be restored.

The report of the consultation (by the respected House of Lords Economic Affairs Committee – discussed here ) gave the RPI a stay of execution. Their recommendation

12. We disagree with the UK Statistics Authority that RPI does not have the potential to become a good measure of inflation. With the improvements to RPI that we set out in the previous chapter … we believe RPI would be a viable candidate for the single general measure of inflation.

They went as far as suggesting the statistics watchdog might be failing in its “statutory duty to promote and safeguard the quality of official statistics” (p. 3).

Today the UKSA have affirmed that failure. They plan to sabotage the RPI by imposing on it the methodology of CPIH. There is a stunning lack of detail in their release, but this must be taken to mean the introduction of a contentious measure of owner occupiers’ housing and switching to the (geometric) formula guaranteed to produce a lower inflation rate.

On the former the Lords said “13. We are not convinced by the use of rental equivalence in CPIH to impute owner-occupier housing costs” .

On the latter, the Lords recognised there was no consensus on this issue; there were “ not in a position to reach a conclusion on whether the Carli [arithmetic] formula is problematic in areas other than clothing ”. The UKSA blithely appeal to their usual evidence as amounting to a judgement “in the round”, and once more refer to international practice. As Unison observed in their evidence to the inquiry, this is to conflate common practice with best practice. The statistical experts in the Royal Statistical Society have also repeatedly contested the ONS’s position on the formula. Their RPI/CPI sub-group (I am a member) wrote to the Financial Times to object to the UKSA announcement, but it has not been published.

The Treasury have to be careful, given various legal protections on making changes to the RPI. Now they have since 2010 not helped: in gaming the differences in RPI and CPI, so that the public in general pay the higher RPI and receive the lower CPI, has played a big part in undermining the statistics. But whatever their role behind the scenes throughout all this, they were obliged to offered the RPI a stay of execution. Responding to David Norgrove, the head of UKSA, the Chancellor writes :

RPI

This amounts to refusing the imposition of CPIH methodology “any earlier than February 2025”. And another consultation (a brief one – January to March 2020) on whether there is appetite to make the change “at a date other than 2030”. Apparently from 2030 the RPI protections from UKSA expire, at which point it is discarded and the Treasury washes its hands of it.

The Chancellor’s letter also observes “While your proposed fix goes well beyond the recommendations of the lords economic affairs committee I understand you have taken this decision based on the advice of the national statistician”.

In fact the statistical authorities have treated advice with contempt. The Lords emphasised the particular problems with clothing, which were exposed by the formula but caused by sampling problems. They opened the way to fixing clothing, and a more considered approach to the formula in general. But this has been ignored. The National Statistician has also ignored the advice of his own Advisory Panel (of which I am also a member) not only focusing on clothing but also on the need for more than one headline measure of inflation (“an uprating index may not be the same as an inflation index used by the Bank of England for inflation targeting”).

The Lords offered the opportunity to restore some credibility to everyone involved in this car crash. But we have a wretched proposal from UKSA and fudge from the Treasury, i.e. more of the same (my associate notayesmaneconomist calls it out here ). But it is not game over.

In July of this year the House of Commons Public Administration and Constitutional Affairs Committee concluded a review of UKSA. When they published their report they emphasised how at the time UKSA were late in responding to the Lords inquiry – yesterday’s recommendations were originally due in April. This situation “rais[ed] doubts about UKSA’s independence from the Government as the regulator”.

Yesterday’s decision must reinforce those doubts. In the real world people are getting ripped off at the time they can least afford it – let’s hope the MPs on the Committee are still paying attention.  The Lords Committee are also yet to react: let’s hope too that they are not ready to give up on the RPI.