Measuring Inflation Contents

Chapter 3: Towards a single measure of inflation

“At the moment, we have RPI, which most would acknowledge has known errors. We have CPI, which is what virtually everyone recognises and is in our remit. Then there is the ONS’s favourite, if you will, the CPIH, which includes housing costs. At some point, it would be good to consolidate the focus on to one.” Governor of the Bank of England, January 2018.114

121.In considering the future of the Retail Prices Index we examined the desirability of continuing to publish multiple price indices. This chapter considers the arguments for and against moving to a single official inflation measure, and sets out the steps for achieving this. It also examines the effects on the index-linked gilt market.

The need for multiple measures of inflation

122.The National Statistician, John Pullinger, told us that inflation measures try to capture “two rather different things”:

“There is an economic concept that we are trying to capture, which we have based on consumption. It is consistent with the measure used in other European countries and has been the basis of the inflation targeting …

At the same time, there are others who say, “The key thing here is the experience of households in relation to prices”. For that, you need something different. You need something that captures things such as mortgage interest payments, that has a more sophisticated or different treatment of issues such as student loans and, perhaps most fundamentally, that treats each individual as one unit, whereas an economic measure inevitably gives greater weight to those who spend more.”115

123.The UK Statistics Authority said that they “believe it is unlikely that a single measure of inflation will be appropriate for all uses.”116

124.The Royal Statistical Society said that “no one consumer price index can meet all user needs.” It said there were two primary purposes which required different indices:

125.Dr Ben Broadbent, however, said he believed there was “a single best measure of consumer prices”. It was “not at all obvious what the difference is between a consumer price index and ‘the experience of households’ … it is not clear to me what is meant by it.”118 Philip Howard, a defined benefit pensions scheme adviser, said he believed the production of two indices “causes confusion” and was “counterproductive”.119

Recent government practice of ‘inflation shopping’

126.The formula effect, particularly after its widening in 2010, has allowed the Government to engage in a practice referred to as ‘inflation shopping’. The RPI/CPI User Group said the Government “uses the RPI to raise its revenue: rail fares, student loans etc, and the CPI when paying out … benefits, pensions, raising tax thresholds etc.” Table 2 below shows the areas where the Government currently uses CPI and RPI as uprating measures.

Table 2: Government use of consumer price indices for uprating

Payments made to the public

Payments made by the public

Benefits

CPI

Air Passenger Duty

RPI

Fuel benefit charges on company vehicles (excluding vans)

RPI

Alcohol Duty

RPI

Fuel benefits charges on vans

CPI

Business rates

CPI

NS&I Index-linked Savings Certificates120

CPI

Regulated rail fares

RPI

Personal tax credits

CPI

Student Loan interest rate

RPI

Public sector pension schemes and state pensions

CPI

Tobacco Duty

RPI

Tax thresholds

CPI

Vehicle Excise Duty

RPI

Source: HM Treasury, Budget 2018, HC 1629, (29 October): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752202/Budget_2018_red_web.pdf

127.When the Coalition Government announced in the June 2010 Budget that benefits, tax credits and public service pensions would rise in line with CPI rather than RPI, George Osborne, the then Chancellor of the Exchequer told the House of Commons that CPI “reflects everyday prices better”. He also said it would save over £6 billion a year by the end of the Parliament.121

128.In October 2018 National Savings and Investments announced that holders of index-linked savings certificates would be linked to CPI rather than RPI from May 2019. This change is forecast to reduce interest payments by £610 million over the next five years. John Glen MP, Economic Secretary to the Treasury, said that “we know that savers who hold these products really value the inflation protection they give. The transition to CPI for new investments over the next five years retains this, while balancing the needs of the taxpayer.”122 This appears to us to be a further example of a switch motivated by its favourability to the Government, rather than a principled approach to uprating.

129.Paul Johnson thought the Government was “correctly” seen to be “rather cynical about where they choose to use the RPI.”123 The Royal Statistical Society said that the uses of the CPI and RPI by the Government were “illogical and arbitrary. In particular, the use of the RPI in the setting of (for example) railway fares and student loan repayments appears unprincipled in view of the Government’s general preference for CPI.”124

130.Simon Briscoe said that this practice had done “a lot to damage the reputation and the use of statistics in public policy generally.”125 The RPI/CPI User Group said that the Government had “engaged in arbitrage damaging public trust in its own statistics.”126

Government response

131.The Chancellor of the Exchequer said that he took issue with the view that the Government were ‘index shopping’:

“We have moved business rates to CPI and in fact have accelerated that change to provide some additional support to business-rate payers. In the rail industry, where regulated rail fares are linked to RPI, the Secretary of State for Transport … has been explicit that he would like to move away from RPI.”127

132.Chris Grayling MP, Secretary of State for Transport, wrote to four rail unions in August 2018, proposing that rail fares could be linked to CPI rather than RPI, if costs, including pay deals, were also uprated by CPI.128

133.The Chancellor of the Exchequer said that once the Government’s fiscal consolidation was completed, “we will review the use of RPI for indirect taxes. We recognise the weaknesses of RPI, but of course there is a significant fiscal impact of moving indirect tax indexation to another index.”

134.While we accept the arguments that consumer price indices have different purposes, we do not believe this warrants the production of multiple indices for government use. Two different measures of inflation allow a government to engage in ‘inflation shopping’.

135.The Government should address the imbalance in its use of consumer price indices. It risks undermining public confidence in economic statistics. It is encouraging to see that the present Government is taking some steps to address the imbalance, for example with the change to uprating business rates by CPI and recent discussions around rail fares.

136.In future there should be one measure of general inflation that is used by the Government for all purposes. This would be simpler and easier for the public to understand. But the UK Statistics Authority should also continue to develop the Household Cost Indices, discussed below.

Which is the best index for a single official measure?

137.This section will consider the available candidates for a single general measure: CPI, CPIH and RPI. It will also consider briefly the development of the Household Cost Indices.

RPI

138.The statistical authorities have left no doubt about their opinion of RPI. Sir David Norgrove, chairman of the UK Statistics Authority, told us it “is not a good measure of inflation, does not have the potential to become one, and we strongly discourage its use.”129

139.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, and a better method of capturing owner-occupier housing costs as discussed below, we believe RPI would be a viable candidate for the single general measure of inflation.

CPI, CPIH and the treatment of owner-occupier housing costs

140.The Deputy National Statistician, Jonathan Athow, said that the lack of a measure of owner-occupier housing costs in CPI was its “major weakness”.130 Shaun Richards, an independent adviser to pension and investment funds, said that “if there is something untenable in my opinion it is a measure of inflation which completely ignores a very important sector which is owner-occupied housing.”131

141.CPIH is therefore the preferred longer-term measure of the Government, Bank of England and UK Statistics Authority. The 2018 Budget said:

“The Government’s objective is that CPIH will become its headline measure over time and that it will reduce the use of RPI when and where practicable. CPIH is conceptually the best measure of inflation, but is relatively new and work is ongoing to understand its properties compared to CPI and RPI.”132

142.The Governor of the Bank of England suggested that over time, the CPIH could become the preferred measure: “at some point, it would be good to consolidate the [consumer price indices] focus on to one. Lest anyone thinks I am advocating changing the inflation target to CPIH, I am not at this stage, because it does not have the track record in place.”133 The Chancellor of the Exchequer told us that given CPIH only became a National Statistic again in 2017: “the Government believe we should allow time for it to bed in and become accepted by the public and other users.”134

143.The UK Statistics Authority said that they believe CPIH to be “the most comprehensive measure of price change across the economy as a whole and it has been our headline measure of inflation since March 2017.”135

Treatment of owner-occupier housing costs

144.Not all witnesses however were happy with the way that CPIH estimates owner occupiers’ housing costs.

145.The three main indices treat owner-occupier housing costs in the following ways:

146.Some witnesses argued that the RPI’s method was preferable to the rental equivalence used in CPIH. Andrew Baldwin, an independent consultant, said that the rental equivalence approach in CPIH was “not credible to the man/woman in the street.” He said the statistical authorities should reform RPI so that depreciation is measured using new dwelling prices and renovation prices rather than existing housing prices.136 Shaun Richards said similarly that changing the depreciation measure to put “up-to-date house prices in it as a replacement … would mean that the RPI would have a great future in front of it.”137 We note that the private rental market is subject to its own distortions and may not provide a good proxy for owner-occupier housing costs.

147.Professor Robert Hill said however that the rental equivalence method was “the only sensible way” of measuring this expenditure. Under this method the rent paid for an equivalent house in the private sector is taken as a proxy for the costs faced by an owner-occupier. Professor Hill believed the rental market in the UK was “large and representative enough to make rental equivalence feasible.”138

148.He said that the RPI was a “confusing” mix of two methods: the ‘user-cost approach’, which focuses on the costs incurred by owner-occupiers over a period (for example, depreciation), and the ‘payments approach’, which measures payments made by owner-occupiers such as mortgage interest payments. He said the RPI’s use of a nominal, rather than real, interest rate was problematic as the share of owner-occupier housing in the RPI rises and falls depending on the rate of inflation.139

149.Dr Ben Broadbent said that the CPIH’s method was “definitely superior” to that of the RPI. It was “not clear” that the cost of a mortgage was the best way to measure the cost of housing; given the relatively small proportion of owner-occupiers with mortgages, rental equivalence made more sense:

“There are 27 million households in the UK; there are fewer than 10 million owner-occupier mortgages. Is the cost of a house to someone who happens already to have paid off his or her mortgage really zero? I do not think it is because, in some kind of opportunity-cost sense, they could move out of the house and let it. What they are really doing, in an economic sense, is acting as both landlord and tenant of the same property. That is the basis on which the CPIH measures housing costs. I think it is the right one.”140

150.The European Commission assessed recently whether owner-occupier housing costs could be introduced into the Harmonised Index of Consumer Prices. It said that “from a conceptual point of view … the inclusion of the cost of dwellings in the HICP remains controversial.” It concluded that it was not suitable currently to include owner-occupier housing costs but said it would pursue “the methodological work required”.141

Household cost indices

151.The Office for National Statistics is currently developing household cost indices which aim to reflect changing prices and costs as experienced by different types of household. Preliminary estimates were published in December 2017.142

152.The Royal Statistical Society believed that these indices could fulfil the role of a consumer price index which shows how inflation affects households: “like the RPI, they are intended to provide a measure of costs as experienced by households.” In these indices each household is given equal weight, while the CPI weights household expenditure by the size of their consumption. In contrast, CPI, and by extension, CPIH were developed for macroeconomic purposes.”143 Jill Leyland said that the household cost indices could replace RPI.144

153.We are not convinced by the use of rental equivalence in CPIH to impute owner-occupier housing costs. The UK Statistics Authority, together with its stakeholder and technical advisory panels and a consultation of a wide range of interested parties, should agree on the best method for capturing owner-occupier housing costs in a consumer price index.

154.Once a method of capturing owner-occupier housing costs has been agreed, the UK Statistics Authority, after consulting the stakeholder and technical panels, should decide which index to recommend as the Government’s single general measure of inflation. The Government should have adopted the preferred candidate as its single general measure of inflation within five years.

155.Our recommendations will not however solve the issue of index or inflation shopping immediately. The Government will need to take action in the interim to address this.

156.While the single general measure is being determined, the Government should switch to CPI for uprating purposes in all areas where it is not bound by contract to use RPI (except for the interest rate on student loans which, as we recommended in our Treating Students Fairly report, should be set at the ten year gilt rate thus reflecting the Government’s cost of borrowing).

157.We now consider the implications of our recommendations for index-linked gilts and private sector contracts that are linked to RPI.

Index-linked gilts

158.A gilt is a Government bond which is issued by HM Treasury.145 They can be purchased directly from the Debt Management Office at gilt auctions or through the secondary market. The nominal value of outstanding gilts in the market is around £1.6 trillion.146 There are two types of gilt:

159.Gilts have a specific maturity date. Gilts have typically been concentrated around 5, 10 and 30-year maturities, although recently longer maturities have been issued: a conventional gilt with a 60-year maturity was issued in May 2018. The longest outstanding index-linked gilt is a 55-year gilt that matures in 2068.

New issuances of CPI-linked gilts

160.If the Government is to use a single measure of inflation, it should be used as the inflation index for index-linked gilts. For now, following our earlier recommendation, new issuances of index-linked gilts should be linked to the CPI.

161.David Lloyd, Head of International Portfolio Management at M&G Investments, told us that new CPI-linked gilts could “absolutely” be issued: “there is a very strong feeling that such a development—producing a CPI linker market—is the foundation stone for a more general move from RPI to CPI.”149 United Utilities Water said that the Government should develop a CPI or CPIH-linked gilt market “with a gradual transition away from RPI-linked issuance.”150

Fragmentation of the market

162.The Chief Secretary to the Treasury was however concerned about new issuance being linked to CPI at this stage:

“If at the moment we were to offer RPI index linked gilts alongside CPI index linked gilts, it would cost more to the public purse, because you would have a fragmented offer. We always have to consider what the overall impact would be on the public finances and the private sector economy before we make that full move.”151

163.The Debt Management Office held a consultation in 2011 on issuing CPI-linked gilts. Sir Robert Stheeman, chief executive of the Debt Management Office, explained that there was a concern about market fragmentation:

“ … one of the issues clearly raised by the market, which is not necessarily a killer argument, was a concern that, if we had two types of index linked gilts out there, we would have a fragmented market, and with that comes cost. I am not saying that cost is insurmountable. There may well be a time in the future when we have to live with that cost, because we want to transition to something for which there is superior demand.”152

164.He said it was “very likely that we would achieve a poorer price for CPI linked issuance than we would for RPI linked issuance” as demand for RPI protection was much greater at the moment.153 There would need to be “a greater amount of pension liabilities to CPI … than there are currently issued to RPI. You need to have a core demand to build a market up and to make it sustainable over the long term.”154

165.Some of the main investors in index-linked gilts are pension funds. They have liabilities linked to inflation given the payments they make to pension holders are uprated. In the private sector, most pension schemes are linked to RPI. The Chief Secretary to the Treasury said it was a case of “matching the assets people have with the liabilities they have, which is why people want to invest in index-linked gilts that are linked to RPI.”155

166.KPMG have estimated that of the £2 trillion private-sector defined-benefit pension liabilities, there are £1.1 trillion linked to RPI, £300 billion linked to CPI and £600 billion not inflation linked. Public-sector defined-benefit pensions are linked to CPI, where there are liabilities worth £200 billion.156 Nomura said that “the potential demand for CPI-linked assets is growing at a markedly faster pace than that for RPI-linked assets.”157

167.Dr Ben Broadbent did not think market fragmentation would occur as a matter of principle. He said there were likely similar concerns when RPI-linked gilts were first issued at the same time as conventional gilts. Although it may take time, “I do not think it would be a permanent and costly fragmentation”:

“ … there are private sector CPI-linked contracts. There is a swaps market in CPI and a couple of private sector institutions have issued CPI-linked debt of their own. There has been a demand for that, and I think that there would be a demand for this too.”158

168.He said that pension providers have switched the pension liabilities of many employees still working in the private sector to CPI: “there is a CPI exposure within many private sector firms and pension funds.”159

169.Sir Robert Stheeman said the Debt Management Office may “want to consult again on this issue when the market is giving us a clear signal that demand is now really sufficient to get this market seriously going.”160

170.The Government should begin to issue CPI-linked gilts and stop issuing RPI-linked gilts. We heard evidence to suggest there was sufficient demand to make a viable market.

171.Once the long-term single official measure of inflation has been agreed, gilts should begin to be issued that are linked to that index. The prospectuses for new issuances of index-linked gilts should be clear that the inflation index will change to the Government’s single general measure of inflation once it has been agreed.

Existing RPI-linked gilts

172.We have examined how existing RPI-linked gilts would be affected by improvements to RPI and a switch to a different index. At present, the last RPI-linked gilt matures in 2068. We here consider the legal position and how any changes could be introduced.

Legal position

173.There are 30 outstanding issuances of RPI-linked gilts. For 27 of them, the prospectuses say that the gilt would be linked to an index that the Chancellor of the Exchequer considers “continues the function of being an officially recognised index measuring changes in the level of UK retail prices”.161

174.For the remaining three outstanding index-linked gilt issuances, which mature in 2020, 2024 and 2030, the prospectuses specify they are to be linked to RPI.162 If they are switched to another index, the Chancellor of the Exchequer has to inform gilt-holders and offer to redeem their stock at par. At present values, it is unlikely many holders would take up this offer.

175.If RPI were to be retained but modified by the statistical authorities, the Statistics and Registration Service Act 2007 requires the approval of the Chancellor of the Exchequer, if the Bank of England considered it to be a “fundamental change” with a “materially detrimental” effect on index-linked gilt holders.163 This clause applies only as long as the index-linked gilts that mature in 2020, 2024 and 2030 are outstanding.164

Improvements to RPI

176.A sudden shift from RPI to another index would be inappropriate. However, it is hard to see why improvements to RPI—such as changes to clothing price collection—should not be made because of the negative effect on index-linked gilt holders.

177.The clothing change in 2010—which caused a 0.3 percentage point rise in RPI inflation—created a one-off windfall for index-linked gilt holders. Chris Giles calculated that the Government had to make an extra £1 billion a year in interest payments to index-linked gilt holders as a result.165 We do not see why a windfall is acceptable but a loss is not. This asymmetry is embedded in the 2007 Act, which requires the approval of the Chancellor of the Exchequer only if a change creates “material detriment” to index-linked gilt holders, not material benefit. We also note that if the clothing change had been tested properly by the statistical authorities, the change should have not been unexpected.166

178.Nomura considered that “gradual improvements in the methodology of the RPI would have little impact on market liquidity”. An example of a gradual improvement it gave was a change to clothing price collection. It said problematic changes would be “adopting the Jevons statistical formula or re-indexing to CPI/CPIH [which] would create substantial capital losses, disruptive to the functioning of the market and generating financial instability.”167

179.Insight Investment said that any changes to RPI “should only be undertaken after considerable consultation and planning, with any redistributive effect minimised. It is also important that comments surrounding any changes to RPI do not undermine confidence that investors will be treated fairly.”168

Aligning RPI into the preferred inflation measure

180.Dr Ben Broadbent said the most “dramatic” improvement to RPI would be to turn it into CPIH:

“[The UK Statistics Authority] could have said, “Yes, we are going to carry on producing it but we are simply going to reform so that it is identical to the CPIH, which we think is the best measure of consumer prices”. I suppose it could propose that, but it would still land at the door of the Chancellor, who would have this big decision, with lots of consequences for account holders. In the end it will be a government process, co-ordinated with the ONS.”169

181.The National Statistician told us that if he were to make improvements to the RPI, he would like to turn it into either the CPI or the household costs index which is under development.170

182.Chris Giles said that it was “entirely plausible” for the statistical authorities to replace the RPI with CPIH.171 Paul Johnson said if such a change was made overnight, you would have a lot of extremely unhappy people who have just lost an enormous amount of money in the long run and will, not completely unreasonably, think that you have broken a contract …  I think we are probably in the wrong place on that trade-off at the moment.”172

Response from market participants

183.Representatives from investment firms and pension funds argued against a change from RPI to CPI for existing gilts. Insight Investment said investors have invested in the “reasonable expectation that RPI will continue over the life of the bonds they have purchased.” They said that any changes to the calculation or use of RPI could cause “significant market disruption” and “damage perceptions of UK creditworthiness.”173

184.Legal & General Investment Management said that “fundamentally, our clients and other investors have bought index-linked gilts on the basis that RPI is the index.”174 They said they were “not against incremental changes to RPI so that it adequately responds to statistical developments. However, the governance around this process would be crucial as all credibility would be lost if this governance process were used to turn RPI into CPI via the back door.”175

Private sector bonds and pension schemes

185.Witnesses also highlighted the effect the abolition of RPI, or a sudden reclassification of RPI as CPI or CPIH, would have on private sector bonds and defined benefit pension schemes.

186.The UK Statistics Authority said that responses to their consultation on the future of RPI “suggested that material downwards revisions [to RPI] could trigger redemption [on corporate bonds], in part since more recent contracts provide for the ‘wedge’ between RPI and CPI.” They said that contractual and legal issues could be “complex and time-consuming to resolve.”176

187.United Utilities Water said that around half of their total net debt was linked to RPI (£3.5 billion), with the latest maturity date in 2057. They said the abolition of RPI could lead to “widespread financial disruption, contract uncertainty and an arbitrary transfer of economic value.”177

188.Many private sector defined benefit pension schemes are indexed to RPI, with scheme rules specifying RPI as the measure of inflation. Ruffer LLP said that “many schemes have the RPI contractually embedded in their trust deeds. Changing these deeds is not simple.”178

189.The Government consulted recently on whether schemes should be permitted to switch from RPI to CPI on the grounds of rationality and fairness. The results of the consultation were published in a White Paper in March 2018:

“It was argued by some respondents that those employers whose schemes cannot switch to paying lower increases suffer a competitive disadvantage. However, other responses were far less supportive. Individual members and those representing them were clear that savings for employers would be at the expense of the members in the form of lower pension increases. Many respondents argued that the Government should not interfere with the pensions promise made by a scheme, as this would set a damaging precedent for further erosion of member rights.”179

190.The Government concluded that employers and trustees should not be able to override the rules of pensions schemes, “given the lack of consensus on what constitutes fairness in this circumstance.”180

191.Dr Jeff Ralph, a visiting scholar at the University of Southampton and former statistician at the Office for National Statistics, said that a “sudden replacement” of RPI with CPI for private pensions would be considered “highly unfair”. He said it was “encouraging” that fairness had been considered in the Government’s consultation.181

192.Paul Johnson said that in case of private sector pensions, the uncorrected clothing issue means there has been a “big redistribution from working-age people that is unintended.”182 He described the “trade-off” involved:

“If you were to move overnight from redefining CPIH as RPI, in 50 years’ time we would be in a better place because we would have a measure that we can all agree is a much better measure of inflation, that is robust and that measures what we are trying to achieve. But tomorrow you would have a lot of extremely unhappy people who have just lost an enormous amount of money in the long run and will, not completely unreasonably, think that you have broken a contract.”183

193.He concluded that “we are probably in the wrong place on that trade-off at the moment. You cannot move away from what is happening for so long. I feel more strongly about the impact it is having on private sector occupational pensions, which simply cannot move away from this RPI measure.”184

194.Once the single general measure of inflation has been introduced, the UK Statistics Authority and the Government should decide whether RPI should continue to be published in its existing form for the purposes of existing RPI-linked contracts, or whether a programme of adjustments should be made to the RPI so that it converges on the single general measure.

195.To avoid disruption, we envisage any programme of convergence would take place gradually, over a sufficiently long time, and that the plan for that should be published at the outset.

196.We note that the consent of the Chancellor of the Exchequer to changes to RPI that cause material detriment to index-linked gilts holders is no longer required after the last issuance to which that clause relates to expires in 2030.


114 Oral evidence taken on 30 January 2018 (Session 2017–19), Q 11 (Dr Mark Carney)

115 Q 53 (John Pullinger)

116 Written evidence from UK Statistics Authority (RPI0026)

117 Written evidence from Royal Statistical Society (RPI0001)

118 Q 61 (Dr Ben Broadbent)

119 Written evidence from Philip Howard (RPI0023)

120 Will switch to CPI from RPI in May 2019.

121 HC Deb, 22 June 2010, col 172

122 National Savings and Investments, ‘NS&I confirm Index-linked Savings Certificates to move from RPI to CPI, (26 October 2018): https://nsandi-corporate.com/news-research/news/nsi-confirm-index-linked-savings-certificates-move-rpi-cpi [accessed 21 December 2018]

123 Q 9 (Paul Johnson)

124 Written evidence from Royal Statistical Society (RPI0001)

125 Written evidence from Q 25 (Simon Briscoe)

126 Written evidence from RPI/CPI User Group (RPI0028)

127 Oral evidence taken on 11 September 2018 (Session 2017–19), Q 11 (Philip Hammond MP)

128 Letter from Secretary of State for Transport to Mick Whelan, General Secretary of ASLEF, Mick Cash, General Secretary of RMT, Len McCluskey, General Secretary of Unite and Manuel Cortes, General Secretary of TSSA (14 August 2018): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/733923/transport-secretary-letter-to-rail-union-general-secretaries.pdf

129 Written evidence from UK Statistics Authority (RPI0026)

130 Q 16 (Johnathan Athow)

131 Written evidence from Shaun Richards (RPI0024)

133 Oral evidence taken on 30 January 2018 (Session 2017–19), Q 11 (Dr Mark Carney)

134 Oral evidence taken on 11 September 2018 (Session 2017–19), Q 11 (Philip Hammond MP)

135 Written evidence from UK Statistics Authority (RPI0026)

136 Written evidence from Andrew Baldwin (RPI0003)

137 Written evidence from Shaun Richards (RPI0024)

138 Written evidence from Professor Robert Hill (RPI0010)

139 Ibid.

140 Q 62 (Dr Ben Broadbent)

141 European Commission, ‘Report from the Commission to the European Parliament and the Council’ 29 November 2018: http://data.consilium.europa.eu/doc/document/ST-15112–2018-INIT/en/pdf [accessed 21 December 2018]

142 Written evidence from UK Statistics Authority (RPI0026)

143 Written evidence from Royal Statistical Society (RPI0001)

144 Written evidence from Jill Leyland (RPI0038)

145 The name ‘gilt’ derives from the term ‘gilt-edged security’, a reference to their primary characteristic as an investment: security. The Debt Management Office’s website says that the name reflects the fact that the British Government has never failed to make interest or principal payments on gilts as they fall due.

146 On 14 November 2018 the total amount outstanding (including inflation uplift for index-linked gilts) was £1,600.20 billion nominal. United Kingdom Debt Management Office, ‘Gilt Market: Gilts in Issue on 14 November 2018’: https://www.dmo.gov.uk/data/pdfdatareport?reportCode=D1A [accessed 21 December 2018]

147 United Kingdom Debt Management Office, ‘About Gilts’: https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/ [accessed 21 December 2018]

148 Ibid.

149 Q 25 (David Lloyd). A ‘CPI linker market’ refers to a market for CPI-linked gilts.

150 Written evidence from United Utilities Water (RPI0007)

151 Q 35 (Elizabeth Truss MP)

152 Q 36 (Sir Robert Stheeman)

153 Ibid.

154 Ibid.

155 Q 37 (Elizabeth Truss MP)

156 Written evidence from Nomura (RPI0032). Public sector pensions were linked to RPI until 2011, see para 127.

157 Written evidence from Nomura (RPI0032)

158 Q 67 (Dr Ben Broadbent)

159 Ibid.

160 Q 44 (Sir Robert Stheeman)

161 Q 9 (Chris Giles)

162 Ibid.

163 Statistics and Registration Service Act 2007, section 21

164 Section 21(4) of the Act states that relevant index-linked gilt securities for the purposes of the section “are those issued before the commencement of this section subject to a prospectus containing provision to early redemption in the event of a change to the retail prices index.”

165 Q 6 (Chris Giles)

166 Witnesses were critical of the lack of testing carried out prior to the clothing change, see para 64.

167 Written evidence from Nomura (RPI0032)

168 Written evidence from Insight Investment (RPI0030)

169 Q 65 (Dr Ben Broadbent)

170 Q 53 (John Pullinger)

171 11 (Chris Giles)

172 Q 13 (Paul Johnson)

173 Written evidence from Insight Investment (RPI0030)

174 Written evidence from Legal & General Investment Management (RPI0033)

175 Ibid.

176 Written evidence from UK Statistics Authority (RPI0026)

177 Written evidence from United Utilities Water (RPI0007)

178 Written evidence from Ruffer LLP (RPI0019). Public sector schemes and state pensions switched to the CPI in 2011, see para 127.

179 Department for Work & Pensions, Protecting Defined Benefit Pension Schemes, Cm 9591, March 2018: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/693655/protecting-defined-benefit-pension-schemes.pdf [accessed 21 December 2018]

180 Ibid.

181 Written evidence from Dr Jeff Ralph (RPI0029)

182 Q 6 (Paul Johnson)

183 Q 13 (Paul Johnson)

184 Ibid.




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