RPI Ignores Rises in Basic Goods - Oakeshott

6.59.07pm BST (GMT +0100) Tue 12th Sep 2006

Responding to the Retail Price Index (RPI) figures published today, Liberal Democrat Treasury Spokesperson, Lord (Matthew) Oakeshott said: "Gordon Brown must get back to his day job as prices rocket for the essentials of daily life.

"Today's cost of living figures show essential prices for food, housing, fuel and light rising by 6.2%, up from 6.0% in July. The increase is double the rises in the Consumer Price Index and the Retail Price Index.

"Fuel costs are up by 29.2% over the year to August. Pensioners and hard-pressed families are really hit hard when their gas bill, their council tax and their rent or mortgage payments go up like this, leaving them no spare cash to buy luxuries. Falling prices on luxuries keep the CPI and RPI down, but that is cold comfort to people who can't afford them."

ENDS

Notes to Editors

Matthew Oakeshott has written to the Chancellor calling on him to protect pensioners and hard-pressed families by introducing a new Essentials Price Index (EPI) - See below:

12th September 2006

Rt Hon. Gordon Brown MP

Chancellor of the Exchequer

H M Treasury

Horse Guards Road

London SW1A 2HQ

Dear Chancellor,

An Essential Prices Index (EPI) To Protect Hard Pressed Consumers

Your chosen Consumer Price Index paints a false picture of the real, unavoidable rise this year in the cost of living for hard pressed families on low incomes and pensioners. Will you ask the Office of National Statistics to set up an urgent inquiry into the need for an "Essentials Prices Index", reflecting what cash strapped people actually have to spend to survive?

Fuel and light costs are up by 29.2% over the year to August; because people on the lowest fifth of the income scale spend 6 pence in every � on their electricity, gas and other fuel bills, twice as much as the much as the average household used for calculating the Retail Price Index, that alone puts their "Essential" cost of living by an extra 0.9%. Food, housing and fuel and light, the three most essential parts of the Retail Price Index, have risen by 6.2% on average over the past year. That compares with a rise of 3.4% in the RPI as a whole and only 2.5% in your new Consumer Price Index, which just ignores housing costs including council tax.

Household bills going through the roof hit low income families and pensioners where it really hurts. When your gas bill, council tax and rent or mortgage payments shoot up, so what if prices are falling for new cars, plasma screen TV's or MP3 players you can't afford? The real cost of living for you and millions more has nothing to do with windsurfers or drinks in nightclubs, or even a full leg wax, but these luxuries are all in the official prices index. If people on the lowest incomes can afford a holiday at all, it is usually in Britain - those costs are up 5% over the past year, but foreign holidays are unchanged.

The Consumer Price Index and the Retail Price Index are what statisticians call "plutocratic" rather than "democratic" indices. If a rich family spends a total of �1,000 a week and a poorer one �200 a week, the rich family counts five times as much in calculating the index. Because cash strapped people have to spend much more of their income than average on the basic necessities of food, housing, and gas and electricity, they are now hit much harder than your indices show.

You don't plan to link pension rises to average earnings until 2012 at the earliest. Meanwhile, if you only raise pensions in line with the distorted Retail Price Index, this year, most pensioners will face a real cut in what their pension buys. And people on the "Rossi Index" for uprating their Jobseeker's Allowance or Income Support have been hit hardest of all - their benefits went up only 1% compared with 3.1% for the RPI two years ago, 2.2% against 2.7% last year and their September uprating this year looks likely to be under 3.%, compared with about 3.5% for the R.P.I.

Unless official inflation statistics tell the same story people know from their own experience, public cynicism will grow and wage pressures will rise. Can we have a new, open and transparent approach to calculating the cost of living for the people for whom it matters most - the ones with nothing to spare after unavoidable price rises?

Matthew Oakeshott

Liberal Democrat Treasury Spokesperson