Today we complete a week filled with UK economic data with the public finances and so far it has been a good week. Before we get to it there has been news about the state of UK statistics from the Public Affairs Committee or PAC of the House of Commons. As a major part of this has been the ongoing shambles over the Retail Price Index or RPI and I gave evidence to the PAC on this issue. So what do they think?
There has been much criticism of the position that UKSA ( UK Statistics Authority) has taken at many stages during the last nine years and the position is not resolved. The Economic Affairs Committee of the House of Lords was critical of UKSA’s failure to correct errors in RPI, stating that, “In publishing an index which it admits is flawed but refuses to fix, the Authority could be accused of failing in its statutory duties.” Evidence to this inquiry from the RPI CPI User Group was similarly critical, stating: “It is a measure of the UKSA failure as an independent regulator that such an inquiry was necessary in the first place and produced such a damning report.
It seems that much of my message has got through.
Concerns have been raised about the Treasury and the Bank of England’s influence over UKSA regarding inflation measures.
That’s polite for they dictate them. Also the designation merry-go-round has been a farce.
UKSA designated RPI as a National Statistic in 2010,286 but cancelled the designation in 2013…… Ed Humpherson later de-designated CPIH, ONS’s preferred measure, as a National Statistic……..CPIH was re-designated as a National Statistic in July 2017 following action by ONS.
As the PAC points out nothing ever seems to happen.
In evidence to our inquiry Sir David Norgrove stated that UKSA was planning to respond to the House of Lords Economic Affairs Committee report in April 2019. This did not happen.
Sadly I can also vouch for this sort of thing as I wrote to the House of Lords on the 26th of February about this issue and if I ever get a formal reply I will let you know. Also I am awaiting a response from the ONS to the points I made at the Royal Statistical Society on the 13th of June last year. I think you get the message.
In general this is a good report which follows on from the report on the RPI by the Economic Affairs Committee and I welcome them both. However there have been nine years of failure here by the UK Statistics Authority where it has proven incapable of getting any sort of a grip. In fact it has made things worse. My experience of giving it evidence was that my time was wasted as it was going through the motions and ignored and or did not understand my points about the large revisions to the Imputed Rent numbers.
Also there is a danger that the establishment parrots the same old lines as for example this.
Chris Giles told us “Index-linked gilts, student loans and rail fares are all pegged to the RPI” and said that “the continued use of an index known to be wrong, takes money from recent graduates, commuters and taxpayers, and hands it as a windfall to longstanding owners of index-linked government bonds”.
Chris who is economics editor of the Financial Times has done some good work highlighting the failings of the UKSA. But it is also true that he has led a campaign against the RPI and previously ( now abandoned) in favour of CPIH. This means that the fact that CPI and CPIH are systemically wrong in the area of owner-occupied housing frequently gets ignored. It has also contributed to the wasted nine years as the establishment represented by HM Treasury were more than happy to get on board with a campaign to get lower inflation numbers otherwise known as CPIH.
After all HM Treasury could de-link student loans and rail fares from the RPI today if it wished. In my opinion they do not do so for two reasons the first is greed and the second is that they want the RPI to garner bad publicity.
There is a link here because over the years we have observed quite a few strategic issues with the UK Public Finances. Two large ones come to mind of which the biggest has been the hokey-cokey with the Housing Associations which have been excluded, included and the excluded again. This has had an impact on the National Debt of between £50 and £60 billion. Then there was the Royal Mail situation where a pensions liability of the order of £17 billion was initially recorded as a surplus of £10 billion.
Added to that I note that this is on the way.
While the change is mainly focused on presentation, we expect public sector net debt (PSND) at the end of March 2019 to decrease by £30.5 billion as a result of the consolidation of pension schemes’ gilt holdings and liquid assets.
On a stand alone basis that may be fair enough but the collective issue is of a large almost entirely ignored liability which increases the numbers here.
We learnt that the run of better data had come to a close with some signs that the closing of Prime Minister May’s term of office has led to an opening of the spending taps.
Borrowing (public sector net borrowing excluding public sector banks) in June 2019 was £7.2 billion, £3.8 billion more than in June 2018; the highest June borrowing since 2015……..Borrowing in the current financial year-to-date (April 2019 to June 2019) was £17.9 billion, £4.5 billion more than in the same period last year; the financial year-to-date April 2018 to June 2018 remains the lowest borrowing for that period since 2007.
As to why there are several factors at play and in these times it is hard not to have a wry smile at this.
This reduction in credit accounts for around half of the observed £405 million year-on-year June increase in EU contributions.
There was something of a curiosity as well.
Interest payments on the government’s outstanding debt increased by £2.1 billion compared with June 2018, due largely to movements in the Retail Prices Index (RPI) to which index-linked bonds are pegged.
I have to confess that this development seems confusing. Because this time last year not only was the annual rate of RPI higher but the pattern was higher, so I will have to check how much the numbers are lagged by as this seems to be the factor at play.
Also there was some actual what we might call negative austerity.
Over the same period, there was a notable increase in expenditure on goods and services of £1.2 billion.
To that we can perhaps add this announcement via the BBC earlier.
Two million public sector workers are reportedly set to get a £2bn pay rise.
The Treasury will unveil the biggest public sector pay rise in six years as one of Theresa May’s final acts as prime minister,the Times reported.
Soldiers are set to get a 2.9% rise while teachers and other school staff will get 2.75%, police officers, dentists and consultants 2.5% and senior civil servants 2%.
This next bit seems to be unlikely though.
It is thought the money will come from existing budgets.
Today’s theme is one of reinforcing the Quis custodiet ipsos custodes line. Or if you prefer who guards the guardians? The UK Statistics Authority and Office for National Statistics regale us with rhetoric about “improvements” but misses the bigger issues and often makes them worse. Added to the problems I have highlighted earlier comes a click bait culture where it is increasingly hard to find the data you want. Also we get opinions on the data which is not the job of the ONS, as its role should be to provide the numbers. The situation with the UKSA is so bad I think it would be better to take the advice of Orange Juice.
Rip it up and start again
Rip it up and start again
I hope to God you’re not as dumb as you make out
I hope to God
I hope to God
Meanwhile I opened by saying so fat this week the economic data has been good but today we did get a possible flicker of a slowing from the tax data.
Central government receipts in June 2019 increased by £0.8 billion (or 1.5%) compared with June 2018, to £58.7 billion,
That night be a monthly quirk but it is lower than inflation.