No plans to scrap bonds linked to ‘flawed’ pricing measure, says Chancellor

Chancellor Sajid Javid said he has no plans to stop the sale of government bonds which are linked to the Retail Prices Index (RPI), despite admitting “flaws” in the pricing measure.

The Government has faced long-running calls for RPI to be scrapped or reformed after shortcomings in the measure were highlighted by the Office for National Statistics (ONS).

The Chancellor said he now wants to consult on plans to change the important gauge of inflation.

But he told the UK Statistics Authority (UKSA) in a letter that he has “no current plans” to stop issuing bonds linked to the inflation measure.

More than a quarter of government bonds, by value, are inflation-linked and the higher rate of RPI could see investors secure a windfall.

The Chancellor said: “I can confirm that the Government has no current plans to stop issuing gilts linked to RPI.

“I recognise that there are flaws in RPI and that maintaining public trust in official statistics is important. But RPI is used widely across the economy.

“UKSA’s proposal to end the publication of RPI would potentially be highly disruptive for the wide range of users of RPI.”

Earlier this year, the Lord’s Economic Affairs Committee suggested an interim switch to consumer price measures in all areas not governed by private contracts, including index-led gilts.

The Statistics Authority said it welcomed the move but added it “regrets” the changes will not take place sooner.

In a letter to Sir David Norgrove, chair of the authority, Mr Javid indicated that he would be unwilling to scrap RPI entirely due to its wide use.

The Chancellor said he will consult on changes to bring it in line with CPIH, a measure of consumer prices which includes housing costs.

Sir David said: “We have been clear that the RPI is not a good measure, at times significantly overestimating inflation and at other times underestimating it and have consistently urged all – in Government and the private sector – to stop using it.

“However, the RPI is unique as we need consent from the Chancellor to make certain changes, such as the one we have proposed.

“Although we regret that no change will occur before 2025, we welcome the Chancellor’s intention to consult on resolving current issues with the RPI.”

Emma-Lou Montgomery, associate director at Fidelity International, said: “It’s not RIP for RPI today unfortunately – not least for rail commuters who would no doubt like to see the measure, which is used to determine how much rail fares go up by each year, scrapped – but the Government has today signalled that the way it’s calculated will be reviewed.

“The fact that RPI is used so widely to determine some of the major living costs we face as consumers and yet the Office for National Statistics is effectively saying it’s not fit for purpose, is concerning.

“As a measurement which helps us, as consumers, understand the cost of living and pressures on our wallets, it is important that it is accurate in order to help us feel in control of our finances.”

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