The Government has cut future pensions for public sector workers by saying that entitlements will be upgraded for inflation only by the consumer price index (CPI) instead of the retail price index (RPI). The apparently fiddly adjustment will lose some pensioners 20% or more of the value of their pensions.
The same indexing problem applies to £294 billion worth of index-linked government bonds. A regular government bond of £1000 running for, say, ten years, entitles you to £1000 in ten years’ time plus twice-yearly interest payments. An index-linked bond pays back £1000 plus ten years’ inflation. But inflation calculated how?
A recent announcement by the Office for National Statistics means that the bond pay-outs, unlike the pensions, will continue to be upgraded by RPI. A change had been expected to upgrading by RPIJ, another index, closer to CPI than RPI, and that would have saved the Government £3 billion a year.
Taking £3 billion a year from the rich is, however, for the Government, a completely different matter from taking billions from the worse-off.