U.K. Lawmakers Blast `Absurd' Use of RPI in Student Loans

(Bloomberg) -- It’s “absurd” that the U.K. government continues to use the Retail Prices Index to calculate repayments on student loans, according to the parliamentary panel that scrutinizes the Treasury.

In a report earlier this year, the Treasury Committee had recommended that the government abandon it and instead switch to the lower and more widely used Consumer Prices Index. In response, the Department for Education acknowledged the problems of using RPI, but argued it has provided consistency over time.

“Continuing to use a measure that it readily admits is flawed, on the grounds of consistency, is absurd,” Treasury Committee Chair and Conservative lawmaker Nicky Morgan said in a statement published Friday. “It guarantees that student loan interest rates will be consistently flawed.”

The attacks have stepped up this year, with Bank of England Governor Mark Carney saying in January that the U.K. should move away from using the measure because it contains “known errors.” Meanwhile, the country’s most senior statistician said that RPI is not, and never will be, a good measure of inflation.

Critics fault its approach to housing costs and say it fails to provide a true reflection of living costs. It lost its designation as a national statistic -- which is assigned to economic indicators that meet a quality threshold -- in 2013.

But the gauge is still used for student loans, as well as for setting annual rail-fare increases and calculating interest payments on inflation-linked government bonds. It was at 3.3 percent in March, compared with 2.5 percent for CPI.

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