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MNI (London)
By David Robinson
     LONDON (MNI) - Senior Conservative lawmaker George Young, speaking on
behalf of the government in a House of Lords debate today, said that it was not
planning to end the issuance of inflation-linked gilts based on the retail price
index (RPI). 
     Lord Young of Cookham said that the government was working hard on a
response, but he heralded the government's answer to one hot issue by ruling out
ending RPI-linked gilt issuance. 
     The government "has no plans to stop issuing index-linked gilts linked to
RPI," Lord Young said. 
     He noted that demand for RPI linkers was high from pension funds and
insurers and said that the Debt Management Office had to seek value for money. 
     The former Treasury minister did not rule out CPI-linked issuance in
future, stating that demand for CPI gilts is growing and that "the issuance of
new debt instruments is kept under review." 
     The Lords Economic Affairs Committee (LEAC) published a highly critical
report in January on the use of RPI and the government has yet to officially
respond to it, despite Chancellor of the Exchequer Philip Hammond previously
stating that a response would be forthcoming in April.
     Lord Young said that the government recognises that RPI is a flawed
statistic but that "further moves away from RPI are complex," with swathes of
pension liabilities and index-linked gilts based on the outdated index. 
     He said that the government would respond "as soon as practicable" to the
LEAC report and that he would relay to the Chancellor the "sense of frustration"
among lawmakers over the failure to come back to them. 
     RPI is widely seen by statisticians as flawed and it is no longer a
national statistic, but all index-linked gilts are still based on its readings. 
     Lord Young said that the government's slow response was not due to lack of
effort but the complexity of the issues being addressed. 
     He said that market participants would be given due warning when a response
was going to be forthcoming. 
     The failure to move away from RPI was met with scorn by other senior
lawmakers speaking n today's Lords' debate. 
     Nick Macpherson, the former Treasury permanent secretary, said RPI was
based on a flawed formula and: "It is better to put it out of its misery for
once and for all."
     He said that he was at the Treasury in January 2013 when RPI saw its status
as a national statistic withdrawn and "six and a half years on I am surprised at
how little progress has been made," in tackling the issues this raised. 
     He said the index-linked gilt market had been the "swing factor" weighing
against reform.
     Some people cite the potential cost of the government having to replace
RPI-linked gilts at par if the RPI formula is changed, but more recent gilts
have had contract wording altered to get round this problem. Macpherson said
that there were now only three index-linked gilts remaining with a requirement
that the government would have to buy them in at par.
--MNI London Bureau; tel: +44 203-586-2223; email:
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