A case for RPI that our employer won’t be able to reject

Whatever we think of the statistical soundness of RPI versus RPIJ and CPI as measures of inflation, all of us can unite around the claim that our UK university employer is in no position to deny the soundness of RPI as the relevant measure of inflation. This is because (i) they are on record as affirming RPI as the relevant measure, and (ii) the more they now insist on the unsoundness of RPI, the harder it will be for them to justify the use of RPI for the raising of tuition fees and the setting of the ‘real interest rate’ for the repayment of student loans.

Re (i), I have found the following further statements from Universities UK which demonstrate that they regard RPI as a sound and relevant measure of inflation:

(i-a) In relation to the tuition fee increase from £9,000 to £9,250 in 2017–18, Nicola Dandridge, Chief Executive of Universities UK, says the following in a post from August subtitled “five myths debunked”:

It has been reported that tuition fees in England are about to rise considerably once more. The only change — announced back in July 2015 in the summer budget — is that the £9,000 fee cap, introduced in 2012, will be adjusted in line with inflation (a rise of 2.8% for the current cap) from 2017–18.

In its reference to the forecast 2.8% rise in RPI, this post provides backing, from the very top of UUK, of the more detailed UUK post to which I had linked earlier (and to which Dandridge also links) regarding the purely inflationary nature of the tuition fee hike.

(i-b) In case our employer tries to argue that, though RPI is the appropriate measure of inflation for the purpose of hiking tuition fees, CPI is the appropriate measure for determining whether salary increases are keeping pace with inflation, I have discovered the following UUK report from February 2015 entitled “Efficiency, effectiveness and value for money”, in which UUK actually brag that they have delivered value for money by keeping uplifts in the salary spine significantly below RPI inflation since 2009:

As with much of the UK labour force, pay restraint has been a feature of human resource strategies since 2009. Awards relating to the uplift of the New JNCHES33 single pay spine … have been significantly below the level of inflation over the period. … Recent developments include:

• The uplift to the pay spine since 2009 has been 5.4%, against inflation of 17.2% over the same period. (p. 20)

Here UUK is assuming that the appropriate measure of inflation is RPI, since the figure of 17.2% corresponds to the increase in RPI from January 2010 to January 2015. CPI, by contrast, increased by only 13.1% during the same period. Moreover, on p. 22, the report makes an explicit reference to RPI as the measure of inflation they are employing. Significantly, this UUK report was published two years after the National Statistician announced that RPI would no longer be regarded as a national statistic because of its failure to meet international standards.

Regarding (ii), if our employer continues, in their current pay negotiations, to deny the statistical soundness of RPI as a measure of inflation, then we should press them to reduce tuition fee increases to the CPI measure of inflation they now prefer when it comes to the setting of salaries.

Moreover, we should press our employer to call on the government to reduce the ‘real interest rate’ from RPI to CPI that students are charged when they repay their loans. (The rate of interest students are charged ranges from an RPI-based ‘real’ — i.e., inflation-matching — rate of interest to RPI + 3%, depending on income level.) Such a reduction would lower the repayments of all students with loans, often by a significant amount, and not just those who will be saddled with the fee increase in 2017–18. See here for more information on this topic.

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Professor, Dept. of Philosophy, Logic & Scientific Method, LSE

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