Retail Price Index: Weighting (Hansard, 10 June 1986)

Lord Campbell of Croy
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Secretary of State for Employment (Lord Young of Graffham)
My Lords, the weighting of the index is revised as a matter of routine at the beginning of each year. I have no immediate plans to change the way that this is done. However, I expect to receive shortly a report from the RPI Advisory Committee and will be ready to consider making changes in the light of its recommendations.

Lord Campbell of Croy
My Lords, I thank my noble friend for that reply. Have the Government taken into account the recent report commissioned by the Institute for Fiscal Studies, which found that the RPI at present overstates the rate of inflation and does not fully reflect expenditure by less well-off families? On both these points should not this accepted measure of inflation be made to be as accurate as possible? If that is done the success, both recent and current, in curbing inflation is seen as being greater than we had thought.

§ Lord Young of Graffham
My Lords, the RPI Advisory Committee was convened in September 1984 to advise on the possibility of rebasing the index. They will be no doubt aware of the report of the Institute for Fiscal Studies, and I think we should see their recommendations. If I might say so, it makes a pleasant change for the Government to be criticised for exaggerating figures.

§ Lord Mellish
My Lords, would the Minister be good enough to publish in Hansard details of the elements contained in the retail price index, so that some of us may know what he is talking about?

§ Lord Young of Graffham
My Lords, I shall certainly arrange for that to be done, or for details to be placed in the Library.

Lord Bruce of Donington
My Lords, in view of the importance of the RPI as a base upon which a whole series of calculations are made from time to time—and which indeed, as the noble Lord will know, is an official index incorporated in the Finance Act for the purposes of taxation—will he take steps to ensure that if any significant change is made in the weighting, the details are revealed by way of a separate document published by the Government so that everybody knows exactly what is happening?
Also, is the noble Lord aware that the movements of the RPI are also of some significance in the price formula in connection with British Telecom and are proposed to be of significance in the case of gas bill prices? Will the noble Lord take all these considerations on board and make sure that the House is thoroughly informed of when any significant changes are made and the precise reasons for them?

§ Lord Young of Graffham
My Lords, I am well aware of the significance and the importance of the retail price index and also of the various different ways in which it is used, including Government securities. That is the reason there is an advisory committee, which is an independent committee. They will be making suggestions to me which will be published. I have no doubt at all that they will be giving the best possible advice and that they will be looking at it from an independent point of view.

Lord Bruce of Donington
My Lords, but will it be published?

§ Lord Young of Graffham
My Lords, I should have thought so.

§ Lord Monson
My Lords, would the noble Lord agree that people on very low incomes do not normally 117 either run motor vehicles or pay mortgage interest? Would he agree therefore that the retail price index as at present constituted is not an adequate guide to inflation so far as concerns the lowest income groups?

§ Lord Young of Graffham
My Lords, I suspect that there are different retail price indices according to whether you smoke, drink, change your clothes too often, and so on. But it is important that we should have a single, comprehensible, simple-to-understand index and one which fairly represents the cost of living in the country. That is the important point.

§ Lord Stallard
My Lords, will the Minister accept that the weighting in the index must be seen to be fair as well? As the noble Lord, Lord Campbell, has said, the present weighting does not reflect people on lower incomes and those who live on pensions. It certainly will not reflect the worsening conditions of those people under the social security legislation which is now going through, particularly in relation to their housing costs. Will all these factors be taken into account in the changing of the index?

§ Lord Young of Graffham
My Lords, I am afraid that I can go along with none of the contentions of the noble Lord's question, but I will say this. My predecessor appointed an advisory committee and I look forward with interest to receiving the recommendations that it makes.

§ Baroness White
My Lords, would the noble Lord consider possibly having two price indices, one for those who are subject to income tax and one for those who are not? That might be a simple way of differentiating.

§ Lord Young of Graffham
Yes, my Lords; the Treasury publishes a separate prices and tax index which shows different figures. But we must be very careful, because we are a nation of some 50-odd million people and we could construct 50-odd million different retail price indices. What we must do is to have a single figure which is fair and understandable.

§ Lord Hatch of Lusby
My Lords, is the noble Lord aware that in the report quoted by the noble Lord, Lord Campbell of Croy, it was shown that the average price of those goods most bought by the lowest 10 per cent. of households had risen by 17 per cent. above the average price of those goods most normally bought by the top 10 per cent. of households?

§ Lord Young of Graffham
My Lords, that may well be, but I am not sure whether it is necessarily so. It may well be what the Institute of Fiscal Studies report said. How correct that is is a second matter, although I have no reason not to suspect that it is correct. But I am advised by an advisory committee of independent people and I must listen to what they have to say.

§ Lord Mackie of Benshie
My Lords, will the noble Lord assure the House that he will accept the advice of his advisory committee, whether it puts the index up or down?

§ Lord Young of Graffham
My Lords, we are talking about the construction of the index, and that is the point to bear in mind. This is an independent index. I have an independent advisory committee and I must listen to it.

§ Lord Kennet
My Lords, have the Government given recent reconsideration to the vexed question of the presence of cigarettes on the retail price index, given that their very presence there is an incentive to successive governments to refrain from raising the price of cigarettes as much as they perhaps ought?

§ Lord Young of Graffham
My Lords, if that is an incentive, I have not noticed that it has worked.

§ Lord Rochester
My Lords, will the noble Lord undertake at least to give some further consideration to the representations made by a number of noble Lords relating to the effect of the retail price index, particularly on the lower paid?

§ Lord Young of Graffham
My Lords, I have an advisory committee and I will really listen to what it has to say. I have no doubt that it has studied the Institute of Fiscal Studies report. But we have to construct a retail price index which works for the entire country. I accept that there may well be differences in the bottom decile or the top decile, but we have to look at an index which is comprehensible for the whole country.

§ Lord Molloy
My Lords, will the noble Lord the Minister accept that we can hardly get a fair estimate of the situation, particularly when, irrespective of what the index says, the lowest group in Great Britain, which has been increasing, is bound to be much worse off than anyone on average pay or for whom the index does not reflect the true situation? Much of this appalling poverty is not revealed by the price index and the Government ought to find some other system of ascertaining who these people are and of helping them.

§ Lord Young of Graffham
My Lords, all I can say is that the bottom decile of earners—that is, the lowest 10 per cent. of earners—have over the last seven years seen their pay go up above the rate of inflation as shown by the RPI.
This is a matter which I expect we could debate all day. But I have an advisory committee and I hope that noble Lords will bear with me and see what that advisory committee has to say.

Lord Campbell of Croy
My Lords, in case there should be any doubt about my purpose in raising this Question, is my noble friend aware that I have complete confidence in the advisory committee and that, although there is this comment in the report about there not being a full reflection of the expenditure of less well-off households, our object must be to have one index? At the moment the report indicates that the present RPI overstates the rate of inflation, so there is not a great deal to be worried about on that

§ Lord Young of Graffham
Yes, my Lords.