Leading article: A measure of honesty

Share
Related Topics

The cost of living is a growing source of contention. In particular, the Government's preference for the Consumer Prices Index, rather than the old Retail Price Index, to measure inflation, has come under attack. The bitter dispute between the Government and the public service unions over new pay settlements has thrown a spotlight on the divergence between the two measures. There is also a general sense among the public that the cost of living is going up at a faster rate than the Government's preferred statistics indicate.

So which measure of public buying power is more accurate? The difference between the two indices should not be exaggerated. There are minor divergences in methodology, but this in itself has no significant impact. Both indexes include the key factors of food and energy prices. The crucial difference is that RPI takes consideration of mortgage interest costs, whereas the CPI does not. Because some 70 per cent of British households are owner-occupied, that can translate into a significant difference. The divergence between the two indices has grown due to the succession of interest rate rises by the Bank of England that began in September 2006. The RPI fell slightly yesterday, while the CPI remained steady. In time, the two are likely to move closer again.

But it is increasingly clear that the RPI represents a more accurate reflection of public buying power over the long term. There is therefore a case for the Government to return to using RPI as its preferred measure. This would undoubtedly make life more difficult for the Government and strengthen the hand of the public service unions in lobbying for higher pay settlements to keep up with the cost of living. But it would be more honest. It would also have the advantage of preventing Mr Brown from making misleading comparisons between high inflation under the previous Conservative government (measured in RPI) and that of now (measured in CPI).

However, that recommendation comes with two significant provisos. The first is that the Bank of England should continue using the CPI rate for its inflation targeting. When the Bank raises or lowers interest rates, this has an immediate and pronounced effect on RPI because it translates very quickly into mortgage payments. Its effect on CPI is much slower acting. If the Bank switched back to an RPI target, it would risk chasing its own tail.

The second proviso is that the Government must be disciplined enough to put the stability of the public finances above all else. If they are unaffordable, ministers must resist the inevitable pressure that would follow a switch to award more generous pay settlements. The Government must be honest about the cost of living in Britain. But it must also be firm about what measures are necessary for the good of the overall economy.

React Now

Latest stories from i100
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Clinical Lead / RGN

£40000 - £42000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: IT Sales Consultant

£35000 - £40000 per annum: Recruitment Genius: This IT support company has a n...

Recruitment Genius: Works Engineer

Negotiable: Recruitment Genius: A works engineer is required in a progressive ...

Recruitment Genius: Trainee Hire Manager - Tool Hire

£21000 - £25000 per annum: Recruitment Genius: Our client is seeking someone w...

Day In a Page

Read Next
 

I don't blame parents who move to get their child into a good school

Chris Blackhurst
William Hague, addresses delegates at the Conservative party conference for the last time in his political career in Birmingham  

It’s only natural for politicians like William Hague to end up as journalists

Simon Kelner
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent