REPEAT: MNI POLICY: UK Govt. Has No Plans To End RPI Linkers

Repeats Story Initially Transmitted at 17:15 GMT Jul 1/13:15 EST Jul 1

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pension liabilities and index-linked gilts based on the outdated index.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. 

     --FLAWED INDEX 

     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: david.robinson@marketnews.com