Consultation on the Reform to Retail Prices Index Methodology

Closed 21 Aug 2020

Opened 11 Mar 2020

Feedback updated 10 Mar 2022

We asked

From 11 March 2020 to 21 August 2020, the UK Statistics Authority and HM Treasury ran a joint consultation on reforming the methodology of the Retail Prices Index (RPI).

The UK Statistics Authority has a proposed technical approach that they intend to take to transition between the current and new methods and data sources of RPI. The Authority was seeking responses on their proposed approach.

The Government sought responses on the potential impact of the Authority’s proposal on the holders of index-linked gilts, the impact on the wider index-linked gilt market and any consequent public finance implications. The consultation sought evidence, with regard to these relevant factors, to inform the Chancellor of the impacts of the Authority’s proposal if implemented before 2030.

The UK Statistics Authority and the Government were also mindful that they did not have full sight of the use of RPI in the economy and financial contracts and therefore welcomed evidence on the use of RPI and its sub-indices more widely to inform future policy decisions.

For full details, please see the Consultation Document.

You said

At the close of the consultation on 21 August 2020, the government and Authority had received 831 written responses, including 209 to the Engagement Hub, 619 to the consultation email address, and three by post. These responses included 240 from companies, trade associations, trades unions or think tanks, with the remaining 591 submitted by private individuals or community groups.

Proposed technical approach

Of the 831 responses to the consultation, 37% provided a response on the Authority’s proposed approach for making the change. Of those who answered this question, the most common response was that respondents agreed that the approach was statistically rigorous (34%). Around half that number (17%) took a different view and suggested that the approach was not statistically rigorous.

A number of respondents made the point that although the proposed transition method was statistically rigorous, they felt that the consultation was too narrow, and should have included the proposed reform of RPI methodology itself. Others suggested that economic impacts – not statistical rigour – should be the primary consideration.

For full details of the responses to this question, please refer to the consultation response.

Timing

There were 229 written responses offering information relevant to these questions. The majority came from stated investors in index-linked gilts. Of these, there were 125 responses from trustees of defined-benefit pension schemes (both private and local government schemes), 17 responses from asset managers and investment firms, and three responses from insurance companies. In addition, the consultation received seven responses from trade associations, which mostly represented investors in index-linked gilts, and from consultancies who advise defined-benefit pension schemes.

Almost all respondents noted that reform will reduce the remaining interest and redemption payments of all index-linked gilts maturing after the implementation date. In turn, this will reduce the market value of index-linked gilts. The direct impact of this on the Treasury would be reduced debt interest and lower maturity payments.

For full details of the responses to these questions, please refer to the consultation response.

Broader impacts

The majority of responses to the consultation addressed the broader impacts of reform. The responses made clear that the RPI is used widely in the economy by individuals, businesses, and government. Broadly speaking, responses to the consultation outlined the impact of reform on two areas of use of the RPI: first, in private arrangements and contracts, and second, by government.

Inflation indices are used widely in private contractual terms to reflect the rise in the general level of prices over time. Examples given include defined benefit pensions, financial instruments (such as derivatives or swaps), property and infrastructure.

Alongside its use as the reference rate in the index-linked gilts, the government uses the RPI to revalorise some taxes, to determine changes in rail fares, and to calculate the rate of interest on student loans. At Budget 2018, the government committed to not introduce new uses of the RPI.

For full details of the responses to these questions, please refer to the consultation response.

We did

Proposed technical approach

After considering consultation responses and advice from its Technical Advisory Panel for Consumer Price Statistics (APCP-T), the Authority has concluded that its preferred approach for bringing the methods and data sources of CPIH into the RPI remains that set out in the original consultation document.

For full details, please refer to the consultation response.

Timing

Having considered the responses to the consultation, on 23 October 2020 the Chancellor wrote to the Authority Chair stating that, in order to minimise the impact of the Authority’s proposal on the holders of index-linked gilts, he will be unable to offer his consent to the implementation of a proposal (such that the Authority intends to make) before the maturity of the final specific index-linked gilt in 2030.

For full details, please refer to the consultation response.

Broader impacts

The government and Authority are mindful of the widespread use of the RPI in the economy and of their responsibilities as public sector bodies to consider the impacts of reform in future policy making.

For full details, please refer to the consultation response.

Certain aspects of the proposed reform to the Retail Prices Index, the consultation, and the joint response are the subject of ongoing formal judicial review proceedings.

Results updated 2 Feb 2021

The UK Statistics Authority and HM Treasury have responded to the recently held joint consultation on reforming the methodology of the Retail Prices Index (RPI) by bringing the methods and data sources of the Consumer Prices Index including owner occupier housing costs (CPIH) into it. The full consultation response document can be found here.

Update 28 January 2021: The responses to the consultation have now been published. The responses can be found in the ZIP files below, and here.

Files:

Overview

The UK Statistics Authority (the Authority) and HM Treasury are jointly consulting on reforming the methodology of the Retail Prices Index (RPI). The RPI is the oldest measure of inflation in the UK and is used widely across the economy and in financial contracts. However, it has a number of shortcomings meaning that it has at times greatly overestimated, and at other times underestimated the rate of inflation.

The Authority is independent from government and responsible for official statistics on inflation measures in the UK. The Authority has recommended changes to the RPI, but in certain circumstances, changes to RPI require the consent of the Chancellor of the Exchequer before they can be implemented. The requirement to seek the Chancellor's consent expires in 2030.

Why we are consulting

In March 2019, the Authority made a recommendation to the then Chancellor to address all of the shortcomings of RPI. The then Chancellor stated that he was unable to consent to the introduction of the change proposed based on the available information at the time. Instead, the then Chancellor announced in September 2019 that he would consult publicly on whether this change should be made at a date other than 2030, and if so when between 2025 and 2030.

What we are asking

The Authority

The Authority has a proposed technical approach that they intend to take to transition between the current and new methods and data sources of RPI. As part of this consultation, the Authority is seeking responses on their proposed approach.

The Chancellor

The Chancellor's limited role in changes to the measurement of RPI stem from its use as the reference rate for certain index-linked gilts. The framework for this role is set out in legislation. As a result, the Chancellor’s decision on consent may only consider factors related to the government’s issues of index-linked gilts.

Therefore, the Chancellor is seeking responses on the potential impact of the Authority’s proposal on the holders of index-linked gilts, and potential broader impacts on the index-linked gilt market. Specifically, the Chancellor will seek views on whether the Authority’s proposal should be made for a date other than 2030 and, if so, when between 2025 and 2030.  

The Authority and the Government

The Authority and the Government are also mindful that they do not have full sight of the use of RPI in the economy and financial contracts. Therefore, this consultation welcomes evidence on the use of RPI and its sub-indices more widely to inform future policy decisions. 

How to respond

Please read our consultation document before responding. Excerpts relating to each question are available under "essential information" in the online survey

A Welsh translation of the consultation document is available upon request, please contact 01633 456 900 for further information.

We encourage you to respond online wherever possible. However, responses in writing or email will be accepted via:

RPIConsultation@hmtreasury.gov.uk

RPI Consultation Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ
.

RPI Consultation Team
Room 2.001
Office for National Statistics
Cardiff Road
Newport
NP10 8XG

On 16 April 2020 the UK Statistics Authority and HM Treasury announced that they would be extending the time period for this consultation to 21 August 2020, in light of the Covid-19 pandemic.  A response to the consultation will now be published in Autumn 2020. An exchange of letters between the Chancellor of the Exchequer and Sir David Norgrove, Chair of the UK Statistics Authority on this matter is available here.

What happens next

Than you for responding, the consultation has now closed. The Government and the Authority will publish a response to the consultation on 25 November 2020, alongside the Spending Review.

Audiences

  • Analysts
  • Academics
  • Businesses
  • Charities
  • Economists
  • Government
  • Local government
  • Policy managers
  • Politicians
  • Researchers
  • Statisticians
  • Think tanks

Interests

  • Business
  • Economy
  • Statistics
  • Data
  • Formal consultations