The UK Statistics Authority has recommended that the government scraps the Retail Price Index (RPI), describing it as “not a good measure” of inflation.

The authority stated that, in the interim prior to scrapping the RPI, its “shortcomings” should be addressed by bringing the methods of the CPIH into it.

In response to the suggestion, Chancellor Sajid Javid has today (4 September) agreed to consult in January 2020 on whether to merge CPIH with the RPI.

However, if it finds in favour of the changes, the merger would not occur until between 2025 and 2030.

AJ Bell senior analyst, Tom Selby, said that Javid had “thrown the decision deep into the political long grass” with the promise of a consultation and no implementation for five years.

He continued: “The government’s reticence to abandon RPI is likely in part driven by the fact it has been used as a money-making machine in recent years.”

Some defined benefit pension schemes have RPI-linked rises in their scheme rules, and millions of people purchases annuities which increase in line with the RPI.

This means that scrapping the RPI as an inflation measure could have serious implications for pension scheme members and professionals.

Selby continued: “It is far from clear what would happen to these savers and investors in the event RPI is ditched altogether. Any move to rip up existing contracts would inevitably end up in a messy legal challenge.

“As a result, it may be that the ONS will need to continue producing a notional figure in order to ensure those with RPI-linked products are not adversely affected.”

In February 2019, the National Statistician concluded that the current RPI composition was unsatisfactory following a House of Lords report and put options forward to the UK Statistics Authority on its future.

The authority then wrote to the previous Chancellor in March 2019, setting out its recommendations.

Speaking today, UK Statistics Authority chair, David Norgrove, stated: “We have been clear that the RPI is not a good measure, at times significantly overestimating inflation and at other times underestimating it, and have consistently urged all – in government and the private sector – to stop using it.

"However, the RPI is unique as we need consent from the Chancellor to make certain changes, such as the one we have proposed.

“Although we regret that no change will occur before 2025, we welcome the Chancellor’s intention to consult on resolving current issues with the RPI.

“We continue to urge the government and others to cease to use the RPI. It would be wrong for the government to continue to use a measure of inflation which it itself accepts is flawed, where it has the opportunity to change.”

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