Consumer Prices Index (Hansard, 16 October 2003)

§ 9. Mr. Bill Wiggin (Leominster)
When the harmonised index of consumer prices measure of inflation has been below 1 per cent. since January 2000; and if he will make a statement. [132064]

§ The Economic Secretary to the Treasury (John Healey)
The HICP inflation figures are published monthly by the Office for National Statistics. As my right hon. Friend the Chancellor said in the summer in this House, that measure gives a more complete picture of spending patterns by all consumers. It is the most comparable measure internationally, and it is used by our European neighbours. That is why, subject to confirmation at the pre-Budget report, he intends to change the inflation target to the consumer prices definition.

§ Mr. Wiggin
Will the Governor of the Bank of England be writing letters, given that the new index—known as HICP, or hiccup—has fallen below the 2 per cent. target several dozen times? Will not that contribute to a significant imbalance in the stability of our monetary policy?

§ John Healey
On the contrary, last month the Governor of the Bank of England confirmed to the Select Committee on the Treasury that a change in target is not likely to be a big factor in setting monetary policy and that HICP is a better measure of inflation than RPIX. That is why my right hon. Friend the Chancellor has said that, subject to confirmation at the pre-Budget report, he intends to change the inflation target to that measure.

§ Mr. James Plaskitt (Warwick and Leamington)
The Minister knows that as a rule the harmonised prices index runs 1 per cent. lower than RPIX. The Chancellor has indicated that were it to be introduced, benefits would remain tied to RPIX. Would my hon. Friend expect it to become the benchmark for wage settlements?

§ John Healey
Both the Treasury and the Bank of England have confirmed that the estimate of long-term divergence is 0.5 per cent., not 1 per cent. As my right hon. Friend the Chancellor has made clear, the index is a better measure for the conduct of monetary policy and the decisions that hang from it. Pensions, index-linked 253 gilts and benefits will remain tied to the current measure of inflation, so pensioners should have no fear that they will lose out.

§ Mr. Michael Howard (Folkestone and Hythe)
But is not this change bedevilled by confusion? Were Treasury sources right when they suggested that implementation might be delayed until the Budget or that alternative options might be considered, including delaying implementation for two years or trying to run the two systems in parallel for a while? Can the Minister confirm that the HICP index is likely to be revised? Has not this ill considered change thrown monetary policy into wholly unnecessary confusion and uncertainty?

§ John Healey
I have no idea what the right hon. and learned Gentleman is talking about. His remarks are based not on fact, but on pure imagination. The principal change to the HICP index was made in 1996. As I said to the hon. Member for Leominster (Mr. Wiggin), this series of figures has been published monthly by the Office for National Statistics: I suggest that the right hon. and learned Gentleman consult it.

§ Mr. Howard
I remind the Minister that the Governor of the Bank of England suggested that changing the target in this way is comparable to David Beckham taking a shot on goal only to see that someone has moved the goalposts. Does he agree with the Governor's view that leaving out housing costs would be "strange"—that is his word—and might confuse people? The fact is that this change has absolutely nothing to do with the economic needs of the country: it stems from the shabby compromise cobbled together by the Chancellor and the Prime Minister on the euro. Is not monetary stability being put at risk as a result?

§ John Healey
I suspect that David Beckham would have welcomed somebody moving the goalposts when he was taking his penalty kick against Turkey last Saturday. If the right hon. and learned Gentleman consults the minutes of the Treasury Committee hearing with the Governor of the Bank of England, he will see that he confirmed that a change in target is not likely to be a big factor in setting monetary policy and that the index is a better measure for targeting inflation and for conducting monetary policy. That is why my right hon. Friend the Chancellor has said that, subject to confirmation at the pre-Budget report, he intends to move to that measure.