LONDON (Reuters) – British finance minister Sajid Javid said on Wednesday he had no plans to stop the sale of inflation-linked government bonds which are based on a flawed measure of price growth, the Retail Price Index (RPI).
More than a quarter of British government bonds by value are inflation-linked and the higher rate of RPI than other measures of inflation means investors receive an estimated annual windfall of 1 billion pounds a year.
“I can confirm that the government has no current plans to stop issuing gilts linked to RPI,” Javid said in a letter to the chair of an economics committee in the upper house of Britain’s parliament which recommended a change earlier this year.
Javid said he recognised there were flaws in the RPI measure but scrapping it would “potentially be highly disruptive for the wide range of users of RPI” which could be damaging to the economy and the public finances.
He said the government was focused on Brexit for now but would launch a consultation about whether to accept a recommendation by Britain’s statistics regulator to align the RPI with another measure of inflation, the CPIH.
But any such change would not happen before 2025, Javid said.
“It’s disappointing that they are not leaving open the option of going earlier in the consultation but at least we are moving on from where we were,” David Norgrove, chair of the UK Statistics Authority, told Reuters after Javid’s announcement.
Insurance firms are big buyers of index-linked bonds to help them pay private pensions that are linked to RPI, and they would have been losers from any immediate change.
But RPI is also widely used for setting annual increases in rail fares and student loan repayments, meaning commuters and students face higher increases than they would if the fares and loans were based on CPIH.
(Reporting by Andy Bruce; Writing by William Schomberg)