telegraph.co.uk / By Philip Aldrick, Economics Editor / 12:02PM GMT 09 Jan 2013
The Government is braced for a backlash from pensioners and institutional investors over changes to the way inflation is measured that are expected to slash incomes but save the taxpayer at least £2.5bn a year.
Jill Matheson, the National Statistician, will on Thursday propose how the retail prices index (RPI) should in future be calculated – a decision that will have major implications for the £280bn index-linked government bond market. Although the recommendation will be made independently, final approval sits with the Bank of England and ultimately the Chancellor.
Market analysts expect the statistics office to prefer a calculation that will lower RPI by 0.9 percentage points. If approved, the change would reduce the taxpayers’ annual interest bill on index-linked gilts by around £2.7bn from February, according to Barclays Research.
However, owners of government debt such as pension funds and insurers have expressed outrage about the possible reforms, warning that they could bring the government bond market “into disrepute” and set back vital infrastructure projects – £40bn of which are currently financed with RPI-linked corporate bonds.