[BITList] How the UK Govt. speak with forked tongue

[Michael Feltham]

Dear Listener

Rail fares frozen in real terms. That was the boast of the Chancellor George Osborne in September announcing that the rise in regulated rail fares such as season tickets and day returns would be no more than inflation in 2015. In the past the government has allowed rail fares to rise by a percentage point or two above inflation. Hence George’s boast that ‘in real terms’ they will be frozen. 

The result is that today regulated rail fares in England rise by 2.5% - the rate of inflation measured by the Retail Prices Index in July 2014. Similar rises in some fares will be allowed in Scotland and Wales too, though they are frozen in Northern Ireland. 

But hang on a minute, the Retail Prices Index was scrapped as an official measure of inflation by the Office for National Statistics (ONS) in March 2013 because it did not conform to international standards. And much of the Government has replaced RPI with the Consumer Prices Index or CPI which is generally about one percentage point less. The latest figures, for example, show RPI at an annual rate of 2.0% but CPI at 1.0%. And at July last year the month used to fix rail fares – RPI was 2.5% but CPI was 1.6%. CPI is compiled according to acceptable international standards. So why is the discredited RPI used by the Department of Transport to fix rail fare rises?

Analysis of the items which are linked to CPI shows that they are generally those where the change to CPI has saved the Government money. Items such as tax allowances and social security benefits. But the RPI is still used to index link items where changing to CPI would cost the Government money. So duties on fuel, alcohol, and vehicles, as well as some student loan repayments, are linked to the higher RPI. The only items which remain with RPI and cost the Government money are index-linked bonds and gilts which rise each year in line with the RPI. But it would be very difficult to change those as they have RPI written into the contract. 

When I asked the Department for Transport why rail fares were in the RPI list rather than the CPI list I was told the Department was waiting for a review by the UK Statistics Authority on the use of price indices across government. That is due out next week. I wonder if it will include whether the Chancellor should claim rail fares would be ‘frozen’ when in fact they have just risen by two and a half times the current rate of inflation. 


 

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