ONS decides to continue with inaccurate RPI calculation

Statistics agency chooses consistency over accuracy.

Against expectations and the recommendations of a number of influential economists, as well as its own consumer prices advisory committee, the ONS has decided not to change how the RPI – one of the two key indices measuring the rate of price inflation – is calculated.

The pressure to examine the index comes from the longstanding difference between the RPI and CPI measures of inflation. Except for the brief period in the midst of the recession, when both indices were recording deflation, RPI has consistently shown levels of inflation higher than CPI. Here's the chart for the last three years, for instance:

 

Some of that difference is due to the fact that the two indices measure subtly different things – RPI includes a broader measure of housing costs, for instance, and it ignores very high and low income households. But the ONS has known for a while that there is also a discrepancy caused by the different formulae used to calculate them.

The ONS began a consultation into whether and how it should eliminate this "formula effect", and has concluded that:

Use of the arithmetic formulation (known as the ‘Carli’ index formula) in the RPI is the primary source of the formula effect difference between the RPI and the CPI… This formulation does not meet current international standards.

So what's it going to do about it? Well, nothing:

The National Statistician also noted that there is significant value to users in maintaining the continuity of the existing RPI’s long time series without major change, so that it may continue to be used for long-term indexation and for index-linked gilts and bonds in accordance with user expectations.

Therefore, while the arithmetic formulation would not be chosen were ONS constructing a new price index, the National Statistician recommended that the formulae used at the elementary aggregate level in the RPI should remain unchanged.

The ONS will, however, develop a new measure of inflation, called RPIJ, which will use a different, better, mathematical formula.

The consumer prices advisory committee, a body which meets around five times a year to advise the ONS on measures of inflation, accepted that the ONS has a responsibility to make sure that there is a level of continuity in the RPI calculations which would be destroyed if there were a change to the formula. But, given the ONS also has a responsibility to compile those statistics "in line with best practice", CPAC concluded that not changing RPI would be "unsuitable".

On the other side, arguing for no change, were 332 of the 406 replies to the public consultation. The ONS said:

The large majority of responses did not address methodological issues but identified the impact that the changes implied… would have for them.

The competing requirements present a tricky path for the ONS to follow, but it does feel like it has picked the wrong option at this point. The job of the statistics agency is surely to produce accurate statistics, rather than statistics which are continually inaccurate in known ways. The fact that RPI is used to decide the value of, amongst other things, index-linked bonds is a reason for it to be correct, not for it to be artificially inflated.

As it stands, the ONS has decided to continue publishing a "measure" of inflation which has an accepted and understood upward bias of 1 per cent a year. It has done this, not because of any real statistical reasoning, but because greater accuracy would be bad for a majority of stakeholders. That seems like a bizarre abdication of its duty.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

***

Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.