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Fix CPI So That It’s Fair to Everyone

Comment 18th August 2010

The government's approach to defecit-reduction needs to be clearer and fairer.

It has changed a range of "uprating" indexes from RPI to CPI as a cost-reduction measure but needs to ensure that CPI is fit for purpose. Claiming that CPI is a better indicator of costs and reflects a consistent approach with the Bank of England measure of inflation is misleading given the current content and use of the CPI.

In terms of content, some elements of housing costs need to be introduced to CPI. Council Tax and Building Insurance costs being the prime example.

In terms of use, there are regulated industries which have permitted price-increase formulae attached to them – fore example British Rail – that are still attached to RPI. If the government is serious about CPI being a "better" measure of inflation than RPI then these formula-based price increases should be attached to CPI too.

Why does this matter?

Currently a range of indices are used to set income and price increases. These need to be made fit for purpose in order to protect the civil liberties of UK residents and  prevent the state from abusing its control of inflation-related price and income increases.

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