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Retail Prices (Advisory Committee's Report)

Volume 886: debated on Thursday 20 February 1975

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asked the Secretary of State for Employment when the report of the Retail Prices Index Advisory Committee will be published; and if he will make a statement.

The report of the Retail Prices Index Advisory Committee was published yesterday (Cmnd. 5905). One of its recommendations, that the reference base should be changed to January 1974, was made in an interim report at the end of 1973. Its acceptance was announced by the then Secretary of State for Employment in a written reply to the hon. Member for Cardiff, North-West (Mr. Roberts) on 22nd January 1974 and it was subsequently implemented. I have accepted the other recommendations now contained in the report, and the consequential changes in the method of construction of the index will take effect in measuring changes in prices from January 1975 onwards—that is, with the February index to be published in March.Briefly stated, the additional recommendations are as follows.(i) The method by which housing costs of owner-occupiers—other than expenditure on repairs and maintenance, rates, water charges, etc.—are included in the index should be changed. Hitherto these costs have been treated by taking them as the "equivalent rent" which the house would fetch if let in a free market and assuming, in effect, that these "equivalent rents" move in parallel with the observed rents of local authority houses and privately rented houses. The committee recommends that in place of an "equivalent rent" these costs should be represented in the index by the cost of mortgage interest payments.(ii) The present method by which rents are counted net of rent rebates for the purpose of constructing the retail price index should remain unchanged, at least for the time being.(iii) Further consideration should be given by an appropriate body to the possibility of supplementing the monthly index of earnings by a more elaborate index which would take account of elements of social spending and subvention on income of all kinds, in other words an index of what is sometimes described as the "social wage".(iv) If in future there are any major developments affecting significantly the method of construction of the retail prices index, then the advisory committee should have an opportunity to consider how they should be taken into account in the index.(v) Households in which the head or spouse receive supplementary benefits, and which are not pensioner households, should remain within the coverage of the General Index of Retail Prices.(vi) As a general rule the weights of the index should be based on the pattern of expenditure over the latest 12-months period for which data are available, rather than on the average of the previous three years as hitherto. Some limited specific exceptions to this general rule are described in the committee's report.(vii) The present system of using fixed weights throughout the year in compiling the section indices for vegetables and for fruit should be replaced by a system which retains fixed weights for each of the sections as a whole but takes variable monthly weights for individual vegetables and fruits reflecting the changing pattern of purchases at the different seasons of the year.