For a long time, governments have availed themselves of a statistical anomaly that enables the Treasury to choose which measure of inflation to employ to its own best advantage.
The Retail Price Index (RPI) currently measures inflation at 1.3 percent. Its poor relations, the Consumer Price Index (CPI) and the CPIH (CPI + housing costs) both register the rate at considerably less, the former at 0.7 percent and the latter at 0.9 percent.
Whilst it may have originated in a historical accident, with one based on an arithmetical model and the other a geometrical, the Treasury has long since learned to profit handsomely from the anomaly.
When it comes to working out how much interest to charge students on their loans, out comes the trusty old RPI, tightening the screw and making university education even more expensive for the offspring of the working class. Conversely, when it comes to the government paying out for the index-linked state pension, the rate of inflation is magically shrunk by simply switching to the bargain basement CPI.
Now the chancellor Rishi Sunak has announced that the RPI measure will be phased out altogether in 2030. This sounds like a long way ahead, but the impact on wage settlements and pensions will be felt far in advance. The ditching of the RPI measure of inflation gives the green light to bosses everywhere to constrain wages even further below the rise in the cost of living.
Public sector pension schemes were already bounced out of RPI indexing in 2011, and now it is the turn of the private sector, as has been flagged up by the CEO of the BT pension scheme, Morten Nilsson, warning that many thousands of scheme members will lose on average £34,000.
Nilsson accurately described the switch as “a massive transfer of wealth” from defined benefit scheme members to the government. The move would slash £2.8bn members’ benefits over their lifetimes, at the same time cutting scheme assets by £1bn. (Pensions chief attacks Sunak over wealth grab by Patrick Hosking and Louisa Clarence-Smith, The Times, 27 November 2020)
Chancellor Sunak is trying to present his move as being dictated by the supposedly independent UK Statistics Authority, but it is clear that the scrapping of RPI is just one more facet of an attack on all fronts against the working class, as capitalism conspires to make workers pay for the capitalist crisis.
Nilsson complains bitterly that the BT pension scheme is being punished for its prudence in spending money on hedging against inflation risk, only to be stymied by the abolition of RPI. But this begs the question: what kind of society is it that behaves as if the basic right of workers to a dignified and solvent retirement should be in any way be made conditional upon the vagaries of the market, the three-card-trick of manipulated inflation measures or any other gambler’s charter?
It is not by pension schemes ‘prudently’ hedging their market bets and perfecting their skills in playing the market (with chips filched from workers’ contributions) that workers’ right to a decent retirement can be guaranteed.
It is only the overthrow of the capitalist state and the establishment of a planned socialist economy that will offer such a guarantee.