Tuesday 12 February 2019 11:44 am

MPs call for government to scrap ‘flawed’ inflation measure used to calculate rail fares and phone bills

Reporter at City A.M. covering banking, markets and insurance

Reporter at City A.M. covering banking, markets and insurance

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MPs have ramped up pressure on the government to fix errors in the “flawed” inflation measure used to calculate rail fares and mobile phone bills.

The retail price index (RPI) lost its status as a national statistic in 2013 but, despite being branded a “very poor measure” by the Office for National Statistics, it is still used to determine bills and rail fares.

Read more: The Lords have spoken: It’s time to fix the way we measure inflation

Last month the House of Lords economic affairs committee concluded that a statistical error in RPI caused a 0.3 percentage point increase in 2010, which is said led to a £1bn yearly windfall for index-linked gilt holders “at the expense of consumers such as students and rail passengers.”

The committee, along with the Treasury Select Committee, has urged the UK Statistical Authority to seek consent from the chancellor, Philip Hammond, to fix the measure.

The committees had previously called for RPI to be abandoned altogether.

Treasury select committee chair Nicky Morgan said it was “absurd” that RPI was still be used by the government.

She said: “It appears grossly unfair that government formulae affecting people’s incomes, such as pensions and benefits, often use the consumer prices index (CPI), whereas formulae affecting outgoings, including student loans, often use RPI, which typically gives a higher rate of inflation.”

Lord Forsyth said: “The UK Statistics Authority told us they had not asked the chancellor to approve fixes to RPI because they expected he would say no.

“The Treasury said they could not act because no request had been submitted. This is a ridiculous merry-go-round.”

The latest RPI hike led to rail fares increasing 3.1 per cent for 2019.

Read more: Rail fares rise by 3.1 per cent despite train delays

In recent years RPI has been around one per cent higher than CPI.

Last year ONS reiterated its position and discouraged the use of RPI, while Ofcom has also said it is looking into the issue of mobile phone providers using the formula to calculate increases to bills.