The charity Age UK has produced the ‘Silver RPI’, its assessment of the levels of inflation faced by older people.
Now I seem to remember that Steve Webb, Pensions Minister, argued back in July that the switch to the Consumer Price Index for the uprating of pension benefits was because the CPI was ‘a more appropriate measure of pension recipients’ inflation experiences‘ than RPI. In contrast, Age UK’s work demonstrates that not only is CPI a less relevant measure of inflation than RPI as regards older people, but that even RPI (which historically is about 0.75 percentage points higher than RPI, with the gap likely to be higher in the next five years) actually under-estimates the level of inflation experienced by the over-55s. Indeed, the experience of inflation rises with age: since the start of 2008, RPI has under-stated the level of price rises for the 55-59 age group by 1.8%; and by 4.1% for the over 75s.
The difference results from the effects of the fall in mortgage costs masking the effects of price rises elsewhere, with older people carrying less mortgage debt and, therefore, with expenditure patterns which are less influenced by mortgage costs, while older people are typically more exposed to rises in utility costs since a greater proportion of their expenditure goes on heating and lighting.
The difference to RPI for the ‘true’ rate of inflation for older people is costly and, therefore, the gap between CPI and the silver RPI will be even more so given how much CPI undercuts existing RPI.
If RPI is not an appropriate measure of inflation for older people – which clearly it is not – then Age UK’s work demonstrates just how much the switch to CPI was dictated not by a desire for greater stability, accuracy or any other such superficially ‘noble’ reason but by the simple desire to save money, and from a vulnerable group of people perhaps less able to mount a strong voice in opposition to it. A simply shameful exercise from a government with a bankrupt morality.