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Business Comment

Russell Lynch: Yet another way to make the numbers add up

Outlook What Britain really needs, the Office for National Statistics has decided, is another inflation index – to add to the 11 we have already.

Hence in March, after a two-year consultation on the retail price index which has decided it isn't fit for purpose, the ONS will publish a new benchmark, called RPIJ.

RPIJ basically consists of what the number-crunchers wanted to do to the RPI, but were barred from doing by the National Statistician, Jil Matheson.

It will be statistically pure, but have no practical application at all: one economist invoked the spirit of legendary Bullseye host Jim Bowen by dubbing it the "look at what you could have won index". Yet the flawed, existing RPI will be used to price returns on some £350bn of inflation-linked government debt.

If you think this is a rum state of affairs, you're not alone. The ONS overseer, the National Statistics Authority, has called for an immediate review of the current RPI to assess whether it still merits inclusion in the national statistics. The ONS will deny it until they are blue in the face, but leaving the RPI alone feels like they've bottled a decision that takes them uncomfortably into political territory.

More than 80 per cent of the responses to its consultation called for no change, and a mere 16 per cent cited any methodological reasons in the response. It was more a case of winners and losers, and "I'm alright Jack".

Pensioners in private schemes linked to RPI were in the immediate line of fire, as their pension increases would have dwindled under a reformed index. The vocal pensioner lobby claimed victory as the decision emerged. With RPI also linked to a host of other major payments such as student loans, utility bills, fuel and beer duties, it was easier to maintain the status quo.

So as it stands, investors in RPI-linked debt are getting over the odds from taxpayers. Train companies will continue to charge commuters too much due to the RPI link, and our water bills will be too high. This is scandalous.

If the ONS has fudged the changes, it's up to the Chancellor to make sure we have a fair measure of inflation, not a broken one.