Inflation and General Damages – RPI or CPI?
Tim Grace discusses the different measures that could be used for inflation adjustments with regards to general damages.
The Introduction to the Sixteenth Edition of the Judicial College Guidelines, published in April 2022, referred to a “slow but steady rise” of inflation. The increase since the previous edition was said to be 6.56%. The editorial team responsible for the Fifteenth Edition considered that inflation had “continued its slow upward path” and recognised an increase of 7% over the period from May 2017 to June 2019.
The increase described in the last two editions of the Guidelines was in RPI, the Retail Prices Index, the progress of which can be seen on a chart on the website of the Office for National Statistics (ONS). The chart shows that RPI was 271.7 in May 2017 and 289.6 in June 2019, so the 7% increase identified in the Introduction to the Fifteenth Edition had been rounded up from 6.59%.
Although published in April 2022, the figures contained in the Sixteenth Edition of the Guidelines reflected the RPI in September 2021, which was 308.6. It was 376.4 in June 2023, the latest month for which data have been published. With very slight rounding up, the increase in RPI since September 2021 is an eye-catching 22%.
I have found it generally (but not quite universally) accepted that an increase should be applied to Guidelines figures to reflect inflation. In case the argument should be challenged, it may be pointed out that inflation-related adjustments are routinely made from edition to edition of the Guidelines, and that it would not sensibly be suggested that awards made in previous cases should not be fully updated to account for inflation when used as comparators. If more is needed, the editors of the Sixteenth Edition have commented (still in the Introduction), “For the avoidance of doubt, of course, the guideline figures should be increased by the appropriate index for inflation between editions.” A recent decision of a Recorder may also be relied upon (Blair v Jaber), although it should be noted from paragraphs 17 – 18 of the judgment that Recorder Jack was evidently not made aware that the Guidelines, while published in April 2022, contained figures reflecting RPI at September 2021.
It is perhaps surprising that, having confidently relied on RPI to determine the inflation increase since the previous edition, the editors of the latest edition of the Guidelines have ambiguously advised using the appropriate index for inflation between editions. The best-known ‘rival’ to RPI is CPI, the Consumer Prices Index, the changes in which can be seen here. Others are available, such as CPIH, the Consumer Prices Index including owner occupiers’ housing costs, but I shall leave that for another day.
CPI was 103.3 in May 2017, 107.9 in June 2019, 112.4 in September 2021 and 131.5 in June 2023. If used to determine Guidelines increases for inflation, the increase from the Fourteenth to the Fifteenth Edition would have been 4.45%, or 4%, with the rounding then preferred by the editors. The current edition would have applied a 4.17% increase, and the inter-edition increase as at June 2023 would be 17% (courtesy of even slighter rounding up than before).
As the choice of Index makes a significant difference, which one should be used? As the increase concerns the Guidelines figures, it may be contended that RPI should be used, as that has been favoured by the editors (recently, at least). However, John Pullinger, UK National Statistician from July 2014 to June 2019, was not a fan. He wrote a forward to an article published by the ONS in March 2018, whose title rather betrays its leanings: Shortcomings of the Retail Prices Index as a measure of inflation. The foreword includes the following:
This document summarises the analysis that has been done to offer a clear view on our current understanding of the drawbacks of the Retail Prices Index (RPI). Overall, RPI is a very poor measure of general inflation, at times greatly overestimating and at other times underestimating changes in prices and how these changes are experienced.
In 2013, the RPI lost its status as a National Statistic. Our position on the RPI is clear: we do not think it is a good measure of inflation and discourage its use. There are other, better measures available and any use of RPI over these far superior alternatives should be closely scrutinised.
Given the views of its National Statistician (also Head of the Government Statistical Service and Chief Executive of the UK Statistics Authority), it might be expected that the government would decry any use of RPI. And yes, CPI is duly used to calculate rises in state pension and universal credit. But no, RPI is the Index relied on for the purpose of increases in various duties and interest on student loans. Some companies also like to use RPI to determine annual price increases on mobile phone contracts, train fares, etc. Examining why RPI might sometimes be used to calculate what the public should pay but not what the public should receive is beyond the scope of this article.
While claimants should naturally rely on RPI to best represent the intentions of the learned editors of the Judicial College Guidelines, I anticipate that many judges, if invited to consider the ONS’s view, as asserted by Mr Pullinger, would favour the more conservative increase provided by CPI. As well as the far more stimulating question of the colour of its cover, the editors of the next edition of the Guidelines should be expected to address the question left unanswered by their predecessors now that it makes a meaningful difference: RPI or CPI? On a gloomy note (for claimants and their lawyers), it is possible that increases previously applied for inflation may be revisited, as the last two editions (at least) have applied an RPI-based increase.
In my next article, I shall examine in detail the increases applied to fixed recoverable costs for personal injury cases to reflect inflation since July 2013. No spoilers!