Ministers 'consider alternatives' to 5.2% benefits rise

[DarthVector]

From the BBC (reposted from Penthesalie's thread on Aimoo OuchToo):

http://www.bbc.co.uk/news/uk-politics-15572524

Unfortunately, the story is based on leaks. Although it's likely to be true, given how well it fits the Government's present course on welfare, there's an extreme shortage of information on what they're actually considering as an alternative.

The thing is, using an average inflation rate for the year - which I assume means using an average of monthly CPI figures over the 12 months to that September - wouldn't actually save any money in the long term. Neither would using a 6 month average to that September, nor would using the lowest monthly CPI figure from the previous 12 months.

Why? Simply because cherry-picking a low number this year leaves you with less potential for cherry-picking next year. None of the schemes I've seen suggested do more than smooth out some of the variability from year to year.

I just dumped the entire historical CPI record (starting in 1988) from the Office for National Statistics into a spreadsheet and calculated what £100 in September 1989 would be now using each method. There's a copy of the spreadsheet attached to this message, but be warned, it's quick and dirty. For this post, you want the worksheet named "Variations on CPI".

The results are as follows:

• £179.11 using the September CPI figure (the current method);
• £179.37 using an average of monthly CPI figures over the 12 months to that September; or
• £178.98 using an average of monthly CPI figures over the 6 months to that September; or
• £178.88 using the lowest monthly CPI figure from the 12 months to that September.

The difference is negligible (this is over two decades, remember) and there are even years when the cherry-picking methods produce higher increases!

That said, £100 last year would be:

• £105.22 using the September CPI figure (the current method);
• £104.15 using an average of monthly CPI figures over the 12 months to that September; or
• £104.55 using an average of monthly CPI figures over the 6 months to that September; or
• £103.13 using the lowest monthly CPI figure from the 12 months to that September.

In other words, it does work if the Government only wants a one-off saving to make themselves look good this year. Obviously, that still inflicts a one-off deduction on us, which would persist in real terms forever.

The only way I can see for the Government to save money in the long term with a plan like this is to move the goalposts every single year, or adopt a measure that doesn't actually take full account of inflation. In fact, one can argue that CPI already fails that test when compared with RPI, because CPI doesn't consider mortgage interest.

Anyone for FPI - Fantasy Price Index?

[superhumandiva]

Thanks for putting this up

[Offworld]

Cameron coalition's alternative to a benefits rise.......

http://news.sky.com/home/politics/article/16110944

>angry<  More foreign aid.

[DarthVector]

Having just seen the Daily Mail article in Sofie's new thread, I've added historical records for CPI, RPI and an average earnings index to my spreadsheet.

Unfortunately, I can only match up the data sets from 2000, because that's when the earnings data set starts. There's still enough to make valid comparisons and prove the point I'm about to make, though. You can get the updated spreadsheet from the attachment in the first post of this thread, but be warned, it's still quick and dirty. For this post, you want the worksheet named "CPI vs RPI vs Earnings".

I've calculated what £100 in September 2000 would be now, using the September figures for each index. The results are as follows:

• £129.17 using CPI (the current method);
• £138.56 using RPI (the old method); or
• £143.51 using the average earnings index.

In other words, benefits would actually be much better now if they had always been indexed to average earnings, as opposed to one of the price indices. The current tabloid hysteria about only giving benefit claimants the same rise as working taxpayers is yet another instance of people wanting to move the goalposts when it suits them. As with the Government, so with the tabloids.

Using these indices, plus the leak about restricting benefits to a 4.5% increase, I calculate £100 last year to become:

• £105.22 using CPI (the current method);
• £105.59 using RPI (the old method);
• £104.50 using the leaked 4.5% increase; or
• £101.83 using the average earnings index.

I used the most conservative average earnings index I could find, which is why it only shows a 1.83% increase rather than the 2.5% one the Daily Mail are kicking around. The 2.5% increase would yield £102.50 instead of £101.83.

Just like my original post, you'll note that the cherry-picking system for increasing benefits is only useful to the Government if they cherry-pick a new rule every year. Whether you can actually call that a "rule" or not is another question.

As usual, all statistical data sets are from the Office for National Statistics.

[DarthVector]

I've updated the original post and reply #3 to include further information based on Superhumandiva's new thread. In addition, I've combined my two spreadsheets into one spreadsheet with two worksheets, so that everything is kept together. You can get that spreadsheet from the attachment in my original post.