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The coalition's £11bn stealth cut: switching from RPI to CPI

A technical quirk will allow the government to skim small amounts each year from lower income households.

What's the biggest cut George Osborne has made as Chancellor? Scroll through the Budget Red Book and the answer may surprise you. There's the removal of child benefit from higher rate taxpayers, clocking in at £2.5bn by the end of the parliament, and there's the time limiting of incapacity benefit which will save, eventually, around £1.2bn. But the biggest cut of all makes both moves look like minnows. It's the switch from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) as the measure used to calculate tax credits, benefits and public service pensions. It will save a colossal £11bn a year by 2015-16 -- and you won't be alone if you know nothing about it.

The switch to CPI is the biggest single stealth move by a chancellor in recent memory. And with the money coming mostly from the budgets of lower income households, it's beholden on us to give it a little more attention. The decision was made in Osborne's first budget as Chancellor in June 2010 and it was effective from April this year, at which point the indexing of all benefits, tax credits and public service pensions switched from the higher RPI measure of inflation (currently at 5.2 percent) to the lower CPI (currently at 4.5).

Although the annual differences in the two measures are small -- on average, the CPI has been around 0.7 percentage points lower than the RPI in the past decade -- they quickly get big over time. Cumulatively, prices under the RPI have risen 53.6 per cent since 1996 and by 35.6 per cent on the CPI. Those are dramatic differences in public spending, and they feed through directly into household budgets. If, for example, you're a working parent who received £500 a month in tax credits in 2010, then under the old system, your payments would rise to around £720 by 2020; under the new rules they'll rise to around £625. Have no doubt that a direct cut in benefits of the same level would have aroused considerably more ire.

To date, what little argument there's been over this issue has come down to technical details about the way the two measures of inflation are calculated. Put simply, there are two main differences. First, the CPI covers a smaller basket of goods than the RPI, excluding, for example, mortgage interest payments, Council Tax, vehicle excise duty and TV licenses. Second, each measure is calculated using a different mathematical formula. Now, as you might suspect, this quickly gets horribly complicated (for the masochists there's a full explanation here). But the important point is that, because of this difference in methods, the RPI would be (currently) around one percentage point higher than the CPI even if it covered the same set of goods. That, say some, means that the RPI overstates inflation.

No doubt the stats geeks among us could stay up all night debating such things. But amidst all the back and forth over "RPI versus CPI", there remains an awkward truth for the CPI gang: the reason the CPI is a poor measure of the cost of living is that was never intended to be one. It was invented by statisticians as a macroeconomic tool, not least for use by central banks, that would give a comparable measure of price-changes across different countries. In fact, the reason the CPI excludes certain important costs related to housing (unlike the RPI) is not that they're unimportant, but that European countries couldn't agree on a comparable way of measuring them.

For anyone who's still with me, it should be clear why this has proved such an effective stealth cut. It's complex, it's slow and it's technical. But in this fog of confusion, something critical is at stake. The impact of changes to indexing rules may not be immediate, but it is profound. As Britain's pensioners discovered to their cost in the 1990s, after Margaret Thatcher broke the earnings-link of the state pension, the result of slower annual increases in income reveals itself only slowly; it takes the form of a strange and uncomfortable sense, growing over time, that you're falling behind.

Of course, ultimately this is a decision made in the pursuit of fiscal sustainability. As the Chancellor is fond of saying, in times like these there are tough decisions to be made. But the truth is this £11bn stealth cut is not tough -- it's easy. It means skimming small amounts each year from the budgets of lower income households, in the hope you'll be out the door before they notice. Had the CPI not existed, the Chancellor would have found himself making these decisions up front, and having to justify them, instead of hiding behind a fortuitous statistical quirk.

If there's a lesson in history here for the Chancellor, it's perhaps to take care. Thatcher's decision on pensions is well remembered, and not fondly. And if Osborne is a fan of retro movies, he might do well to the heed the lessons of that 1990s classic, Office Space. In the film, three humdrum office workers come up with a plan to make billions by skimming a fraction of a cent from every transaction at a major US bank. Within hours the money floods in. But then they take too much and start to panic -- and rightly so. If there's one thing that's dangerous about stealth cuts it's the anger of those who find out.

James Plunkett leads the Resolution Foundation's Commission on Living standards.

James Plunkett is director of policy and development at the Resolution Foundation

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The decline of the north's sporting powerhouse

Yorkshire historically acted as a counterweight to the dominance of southern elites, in sport as in politics and culture. Now, things are different.

On a drive between Sheffield and Barnsley, I spotted a striking painting of the Kes poster. Billy Casper’s two-fingered salute covered the wall of a once-popular pub that is now boarded up.

It is almost 50 years since the late Barry Hines wrote A Kestrel for a Knave, the novel that inspired Ken Loach’s 1969 film, and it seems that the defiant, us-against-the-world, stick-it-to-the-man Yorkshireness he commemorated still resonates here. Almost two-thirds of the people of south Yorkshire voted to leave the EU, flicking two fingers up at what they saw as a London-based establishment, detached from life beyond the capital.

But whatever happened to Billy the unlikely lad, and the myriad other northern characters who were once the stars of stage and screen? Like the pitheads that dominated Casper’s tightly knit neighbourhood, they have disappeared from the landscape. The rot set in during the 1980s, when industries were destroyed and communities collapsed, a point eloquently made in Melvyn Bragg’s excellent radio series The Matter of the North.

Yorkshire historically acted as a counterweight to the dominance of southern elites, in sport as in politics and culture. Yet today, we rarely get to hear the voices of Barnsley, Sheffield, Doncaster and Rotherham. And the Yorkshire sporting powerhouse is no more – at least, not as we once knew it.

This should be a matter of national concern. The White Rose county is, after all, the home of the world’s oldest registered football club – Sheffield FC, formed in 1857 – and the first English team to win three successive League titles, Huddersfield Town, in the mid-1920s. Hull City are now Yorkshire’s lone representative in the Premier League.

Howard Wilkinson, the manager of Leeds United when they were crowned champions in 1992, the season before the Premier League was founded, lamented the passing of a less money-obsessed era. “My dad worked at Orgreave,” he said, “the scene of Mrs Thatcher’s greatest hour, bless her. You paid for putting an axe through what is a very strong culture of community and joint responsibility.”

The best-known scene in Loach’s film shows a football match in which Mr Sugden, the PE teacher, played by Brian Glover, comically assumes the role of Bobby Charlton. It was played out on the muddy school fields of Barnsley’s run-down Athersley estate. On a visit to his alma mater a few years ago, David Bradley, who played the scrawny 15-year-old Billy, showed me the goalposts that he had swung from as a reluctant goalkeeper. “You can still see the dint in the crossbar,” he said. When I spoke to him recently, Bradley enthused about his lifelong support for Barnsley FC. “But I’ve not been to the ground over the last season and a half,” he said. “I can’t afford it.”

Bradley is not alone. Many long-standing fans have been priced out. Barnsley is only a Championship side, but for their home encounter with Newcastle last October, their fans had to pay £30 for a ticket.

The English game is rooted in the northern, working-class communities that have borne the brunt of austerity over the past six years. The top leagues – like the EU – are perceived to be out of touch and skewed in favour of the moneyed elites.

Bradley, an ardent Remainer, despaired after the Brexit vote. “They did not know what they were doing. But I can understand why. There’s still a lot of neglect, a lot of deprivation in parts of Barnsley. They feel left behind because they have been left behind.”

It is true that there has been a feel-good factor in Yorkshire following the Rio Olympics; if the county were a country, it would have finished 17th in the international medals table. Yet while millions have been invested in “podium-level athletes”, in the team games that are most relevant to the lives of most Yorkshire folk – football, cricket and rugby league – there is a clear division between sport’s elites and its grass roots. While lucrative TV deals have enriched ruling bodies and top clubs, there has been a large decrease in the number of adults playing any sport in the four years since London staged the Games.

According to figures from Sport England, there are now 67,000 fewer people in Yorkshire involved in sport than there were in 2012. In Doncaster, to take a typical post-industrial White Rose town, there has been a 13 per cent drop in participation – compared with a 0.4 per cent decline nationally.

Attendances at rugby league, the region’s “national sport”, are falling. But cricket, in theory, is thriving, with Yorkshire winning the County Championship in 2014 and 2015. Yet Joe Root, the batsman and poster boy for this renaissance, plays far more games for his country than for his county and was rested from Yorkshire’s 2016 title decider against Middlesex.

“Root’s almost not a Yorkshire player nowadays,” said Stuart Rayner, whose book The War of the White Roses chronicles the club’s fortunes between 1968 and 1986. As a fan back then, I frequently watched Geoffrey Boycott and other local stars at Headingley. My favourite was the England bowler Chris Old, a gritty, defiant, unsung anti-hero in the Billy Casper mould.

When Old made his debut, 13 of the 17-strong Yorkshire squad were registered as working-class professionals. Half a century later, three of the five Yorkshiremen selec­ted for the last Ashes series – Root, Jonny Bairstow and Gary Ballance – were privately educated. “The game of cricket now is played in public schools,” Old told me. “Top players are getting huge amounts of money, but the grass-roots game doesn’t seem to have benefited in any way.”

“In ten years’ time you won’t get a Joe Root,” Rayner said. “If you haven’t seen these top Yorkshire cricketers playing in your backyard and you haven’t got Sky, it will be difficult to get the whole cricket bug. So where is the next generation of Roots going to come from?” Or the next generation of Jessica Ennis-Hills? Three years ago, the Sheffield stadium where she trained and first discovered athletics was closed after cuts to local services.

This article first appeared in the 19 January 2017 issue of the New Statesman, The Trump era