RPI being replaced by the RPIJ, essential reading for everyone, “What a Rip-Off”

By | March 26, 2013

 RPI being replaced by the RPIJ, at long last.

The RPI, an iniquitous system used by landlords of hiking rents above inflation, is being replaced by the RPIJ, this article shows how rents can be be further hiked beyond practical viability, perfectly legally, along with a vast number of other essentials, “What a Rip-Off”.

“Office of National Statistics / RPI 

News reaches us from the Office of National Statistics in a pronouncement on 19 March 2013, that the Retail Price Index (RPI) will suddenly be replaced by the RPIJ which stands for ‘Retail Price Index Jevons Method.   It appears that the RPI calculations were both inadequate and inaccurate to truly reflect inflation.

It appears that the Office of National Statistics which calculates inflation by looking in detail at the changing price of a representative sample or basket of around 700 goods and services, will now refine the long established RPI calculation system for a different formula which, surprise surprise, calculates a final inflation figure that is consistently lower than that which has been long established under the RPI standard calculations.

For example, the ONS confirm that in the past 10 years, the basket of prices has increased by 31.9% under RPIJ, compared with 38.1% using RPI.

Not that we have the vaguest understanding of the technicalities underlying this startling confession, but it appears that since the RPI was launched in 1947, the average inflation price has been using the “Carli” method.   RPIJ uses the alternative and more accurate Jevons method.  

This takes us directly to the insidious annual rent rises in a huge number of pub leases that are automatically linked to increases in the RPI as it has hitherto been calculated.   It appears that this insidious annual rise over the last 10 years is out of kilter with reality.   It is suggested that you don’t hold your breath hoping for a refund from your Pubco / Brewer as the rock solid defence is that they have acted in accordance with established principle which, after all, only changed when the ONS made their pronouncement on 19 March 2013.

In February, the RPI was 3.2%.   However, the RPIJ for the same month is actually 2.6%.   Please ensure that you specifically remind your Pubco that under the terms of your existing lease, RPI does now not exist and we suppose, a commercial side letter will have to be issued by your freeholder to make the correction into RPIJ.  

Consumer Price Index (CPI)

Regarding the reality of RPIJ as detailed above, it was interesting that the Punch Growth leases were heralded as being of significant advantage over standard Pubco leases as the automatic annual rent rises were proposed to be linked to CPI.   As it would appear that we have now had the universal replacement of RPI with RPIJ, it is interesting to reflect on how the CPI is actually calculated.   It transpires that the ONS has confirmed that CPI in February rose to 2.8%, its highest level since May 2012 which puts it almost exactly on par with RPIJ which is actually lower at 2.6%.  

It still does not excuse the basic system which automatically ratchets up rents, having no regard to the profitability of the property which in the current and continuing recessive times, still is a negative rather than a positive”

The ONS stated that as from 19th March the “old” RPI was null and void.From that date RPIJ came into effect.

 

 

 

An extract from This is Money, straight from the Treasury

Families may have been ripped off for decades by annual increases in bills linked to inaccurate inflation figures.

At the same time as the Office for National Statistics (ONS) published the CPI figures it was also forced to admit its retail prices index (RPI) measure was inadequate and had been replaced.

The ONS said the measure had been swapped for the ‘improved’ RPIJ

Inflation woes: Consumer price index inflation is likely to rise over the next couple of years before falling again, according to forecasts (Source: Bank of England)

RPIJ will be based on the same basket of good used to measure RPI currently but it uses a different formula to calculate a final inflation figure – which turns out be significantly lower.

And the difference in the calculations have revealed a huge gap between the inflation measures.

In February, RPI was 3.2 per cent, but RPIJ – published for the first time yesterday – was 2.6 per cent.

Over the past decade, prices have increased by 31.9 per cent according to RPIJ, but 38.1 per cent using RPI.

Since RPI was launched in 1947, the ONS has worked out average prices using the ‘Carli’ method.

But RPIJ uses the alternative ‘Jevons’ method – which explains the RPI – J

Other countries that used the Carli method, such as America, Canada and Sweden, have axed it. Britain is the last to do so.

Bu RPI is still being used to work out annual increases on many essential household bills, such as water bills and rail fares.

The Campaign for Better Transport showed train fares would be lower this year if RPIJ had been used instead of RPI.

A season ticket from Milton Keynes to London was £4,408 in 2012. This year, the same ticket costs £4,620. But it would have risen to only £4,562 under RPIJ, a saving of £58.

Stephen Joseph, chief executive of the Campaign for Better Transport, said: ‘There are two main problems with the way Government calculates rail fares.

‘One is the policy of above inflation hikes, which needs to end, the other is the use of RPI, which now looks untenable.

‘Many regular train users would find themselves paying hundreds of pounds less each year if the more accurate RPIJ measure were adopted.’

The impact on water bills is similar. The average water bill increased by £13 this year to £388, but it would have risen by £11 if RPIJ had been used. This difference would be hugely significant if applied over a period of many years.

A spokesman for Ofwat, the water regulator, said: ‘We have committed to using RPI as the measure of inflation up until 2020.’

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