§ 2.59 p.m.
§ Lord Higginsasked Her Majesty's Government:
Whether they have any plans to adopt the harmonised index of consumer prices (HICP), used by the European Central Bank as a measure of the level of inflation; and, if so, what are the purposes for which such a measure might be used.
§ Lord McIntosh of HaringeyMy Lords, the Chancellor of the Exchequer said in his Budget Statement that the Treasury would continue to examine the detailed implications of changing the inflation target to a harmonised index of consumer prices basis. That is being examined from a monetary policy perspective only. The Government made a commitment to raise the full basic state pension by the higher of the September retail prices index or 2.5 per cent. Social security benefits will rise in he normal way and gilts too will continue to be treated in the current way.
§ Lord HigginsMy Lords, I thank the Minister for that reply. Is he aware that, at a time of crisis in pensions provision, the Government have not 10 provided time in either House to debate the Green Paper? The pensions Minister has been placed in a Labour Party job and a month later has still not been replaced. Pensioners will be very alarmed by any suggestion that pensions increases may be cut because of a change in the measure of inflation. In the light of all that, I thank the Minister for his reply which will give people reassurance, although it will do little to help the overall problem that pensioners face.
§ Lord McIntosh of HaringeyMy Lords, my understanding is that the only suggestion that pensions could be cut came from Mr Oliver Heald of the Conservative Party. That suggestion has never been made by the Government.
§ Lord Lea of CrondallMy Lords, would my noble friend like to take this opportunity to reiterate the answer that he gave me last week in the debate on the monetary policy committee in relation to the growth and stability pact; namely, that the pragmatic use of the European harmonised index would in no way displace the RPI or RPIX—the index without the mortgage component—but that from the word go there would be the fullest consultation with all the stakeholders on all the moves towards the use of the European index? It is absolutely vital that confidence is maintained, including among those involved in wage bargaining as well as those involved in pensions issues, in relation to there being no problem in using that other index side by side with the RPI and RPIX.
§ Lord McIntosh of HaringeyMy Lords, my noble friend Lord Lea has just confirmed what I originally said to the noble Lord, Lord Higgins. There is no question of pensioners suffering as a result of any change that may be made to the harmonised index of consumer prices for monetary policy purposes. Not only have I said that this afternoon, but as he reminds the House, I also said it last week.
§ Lord NewbyMy Lords, is the Minister aware that in 1999—some four years ago—the House of Lords Select Committee on the monetary policy of the Bank of England recommended that the Government give urgent consideration to the implications of using the harmonised index of consumer prices? Is not the failure of the Government to do anything about that until the past few weeks typical of a more general failure by the Chancellor to give any systematic thought to euro preparations over the past four years?
§ Lord McIntosh of HaringeyNo, my Lords. There has been no significant demand, other than from your Lordships' committee, for a change in the basis of measuring inflation from a monetary policy point of view. Any suggestion that it would be to the detriment of pensioners or social security payment recipients has not come from the Government and is entirely mischievous.
§ Lord St John of BletsoMy Lords, can the Minister assure the House that the HICP will not be adopted in 11 the United Kingdom until the Treasury gives a better indication of the cost of living in the United Kingdom? I refer particularly to the inclusion of council tax and housing depreciation.
§ Lord McIntosh of HaringeyMy Lords, there are two differences between HICP and RPI measures. The first difference—it is one in which HICP is the same in virtually all countries outside the United Kingdom except Japan—is that it uses a geometric average of the basket of prices. That is widely accepted to be a better measure than using an arithmetical mean. The second is that, as the noble Lord, Lord St John, says, there are differences in the actual basket; there are more differences than that which he selected. Clearly, which is more relevant for monetary policy purposes is a matter of great importance that the Treasury is still considering.
§ Lord HigginsMy Lords, is there any reason why the Government should not have confidence in those who are preparing the HICP?
§ Lord McIntosh of HaringeyMy Lords, I see no reason why we should not have confidence in them. Constructing such indices is a highly specialised business.