Commentary on Sections and Schedules Part 1: the Statistics Board Section 21 Retail Prices Index
94.This section sets out the governance arrangements for the Retail Prices Index (RPI). The RPI is an average measure of change in the price of goods and services, which is compiled and published monthly.
95.Subsection (1) provides that the Board must compile and maintain the RPI, and that it must be published every month.
96.Subsection (2) requires that the Board, before making any changes to the coverage or basic calculation of the RPI, must consult the Bank of England on whether the proposed change constitutes a fundamental change in the index that would be materially detrimental to the interests of the holders of relevant index-linked gilt-edged securities (ILGs).
97.This is because, among other things, the RPI is used to calculate returns on ILGs, which are government securities issued by HM Treasury under its borrowing powers in section 12 of the National Loans Act 1968. The prospectuses of ILGs first issued before July 2002 provided as follows:
“If any change should be made to the coverage or the basic calculation of the [Retail Prices] Index which, in the opinion of the Bank of England, constitutes a fundamental change in the Index which would be materially detrimental to the interests of the stock-holders, Her Majesty’s Treasury will publish a notice in the London Gazette immediately following the announcement to the relevant Government Department of the change, informing stockholders and offering them the right to require Her Majesty’s Treasury to redeem their Stock in advance of the revised index becoming effective …”.
98.The prospectuses of eight gilts with maturities ranging from 2009 to 2030 currently contain this redemption clause and the aggregate outstanding amount of these gilts is substantial. The rationale of the redemption clause was to protect holders against arbitrary changes in the nature of the RPI. However, depending on the nature of the change to the RPI and on market circumstances at the time, the triggering of the section could have a significant impact on financial markets and potentially on the public finances.
99.Subsection (3) provides that if, under subsection (2) the Bank of England considers the proposed change to constitute a fundamental change that would be materially detrimental to holders of ILGs, then the Board may not make the change without the consent of the Chancellor of the Exchequer.
100.Subsection (4) defines the various terms used in the section.