1. Introduction
This article explains the estimated effect of implementing measures announced in the March 2020 Budget, previous Budgets and pre-Budget reports on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), the Consumer Prices Index (CPI) and the Retail Prices Index (RPI).
The estimated effect of the March 2020 Budget on consumer price inflation is based on applying the proposed duty rates within the Office for National Statistics CPIH and CPI, and RPI production systems. By measuring the effect on the item and aggregated indices, it is possible to estimate how the 2020 Budget may affect consumer price inflation.
It should be noted that our approach is unable to measure the effects of all the proposed changes in the 2020 Budget and does not take into consideration the indirect effects of policy changes within the 2020 Budget. The Office for Budget Responsibility outlines the inflationary impacts of the policies announced in the 2020 Budget in Box 2.2 of the March 2020 Economic and Fiscal Outlook.
This article does not attempt to quantify the impact of changing consumer or producer behaviour, or any other secondary impact, following the Budget policy announcements. The estimated contributions assume all announced changes are passed on immediately and in full to consumers as soon as they come into effect. In practice, this is unlikely as changes to duties may affect the index over a period of months as stocks deplete.
Back to table of contents2. Budget measures that will affect CPIH, CPI and RPI
Table 1 details the measures announced in the 2020 Budget that will affect the Consumer Prices Index including owner occupiers’ housing costs (CPIH), Consumer Prices Index (CPI) and Retail Prices Index (RPI) 1-month rates in the financial years (April to March) ending 2020 and 2021, along with the estimated magnitude of the effect.
We have not included an estimate of the impact of the Minimum Excise Tax for cigarettes because the effect on the headline inflation figures is likely to be negligible.
Aside from including owner occupiers’ housing costs (OOH) and Council Tax, CPIH is otherwise identical to CPI. The size of the contributions for components other than OOH and Council Tax are exaggerated in the CPI compared with the CPIH because they account for a larger proportion of the overall index.
In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index and its derivatives have been assessed against the Code of Practice for Statistics and found not to meet the required standard for designation as National Statistics. The RPI continues to be used for purposes such as the indexation of pensions, rents and index-linked gilts. For further information, please see Users and uses of consumer price inflation statistics.
| Changes | Percentage points contribution to 1-month change | Timing of effect | ||
|---|---|---|---|---|
| CPIH | CPI | RPI¹ | ||
| Changes to excise duties² | ||||
| Alcohol | ||||
| Budget 2020 announced that duty rates on alcohol would remain unchanged. | 0.00 | 0.00 | 0.00 | NA |
| Tobacco | ||||
| Budget 2020 announced that the duty rates for all tobacco products will be increased by 2% (and 6% for hand-rolling tobacco) above RPI inflation. | 0.04 | 0.05 | 0.06 | 11 March 2020 |
| Vehicle Excise Duty (VED) | ||||
| Budget 2020 announced that VED rates for cars, vans and motorcycles would increase by RPI. | 0.02 | 0.02 | 0.01 | 1 April 2020 |
| Air Passenger Duty (APD) | ||||
| Budget 2020 announced APD rates for long-haul flights would increase in line with RPI. APD rates on short-haul flights will remain unchanged. | 0.01 | 0.01 | 0.01 | 1 April 2020 |
| Road Fuel | ||||
| The rate for unleaded petrol and heavy oil (diesel) remained frozen in the Budget 2020. | 0.00 | 0.00 | 0.00 | NA |
| Changes to indirect taxes | ||||
| Women's Sanitary Products | ||||
| Budget 2020 announced the introduction of a zero rate of VAT for women's sanitary products. | -0.01 | -0.01 | 0.00 | 1 Jan 2021 |
| E-publications | ||||
| Budget 2020 announced the introduction of a zero rate of VAT for e-publications (e-books, e-newspapers, e-magazines and academic e-journals). | 0.00 | 0.00 | -0.01 | 1 Dec 2020 |
| Value Added Tax (VAT) | ||||
| There were no changes announced in the Budget 2020 pertaining to the CPI, CPIH or RPI. | 0.00 | 0.00 | 0.00 | NA |
| Insurance Premium Tax (IPT) | ||||
| The Budget 2020 announced the standard rate of IPT remains unchanged. | 0.00 | 0.00 | 0.00 | NA |
Download this table Table 1: Budget announcements, financial years ending 2020 and 2021
.xls .csv3. Effect of the Budget on the CPIH, CPI and RPI 1-month rate
Table 2 presents a comparison of the effect on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), Consumer Prices Index (CPI) and Retail Prices Index (RPI) 1-month rates of the Budget measures that were implemented in the financial year ending 2020 and those known measures that will be implemented in the financial year ending 2021. There is also the possibility of further changes being announced in subsequent Budgets, which will impact in the financial year ending 2021.
The known measures that will be implemented in the financial year ending 2021 are estimated to increase the CPIH 1-month rate by approximately 0.02 percentage points, the CPI 1-month rate by approximately 0.02 percentage points and the RPI 1-month rate by approximately 0.01 percentage points.
| Changes | Percentage points contribution to 1-month change | |||||
|---|---|---|---|---|---|---|
| CPIH | Consumer Prices Index | Retail Prices Index¹ | ||||
| 2019/20³ | 2020/21⁴ | 2019/20³ | 2020/21⁴ | 2019/20³ | 2020/21⁴ | |
| Excise duties | ||||||
| Tobacco | 0.04 | - | 0.05 | - | 0.06 | - |
| Alcohol | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Vehicle excise duty | 0.02 | 0.02 | 0.03 | 0.02 | 0.02 | 0.01 |
| Air passenger duty | 0.00 | 0.01 | 0.00 | 0.01 | 0.00 | 0.01 |
| Road fuel | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Indirect taxes | ||||||
| Value Added Tax | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Women's sanitary products | - | -0.01 | - | -0.01 | - | 0.00 |
| E-publications | - | 0.00 | - | 0.00 | - | -0.01 |
| Social housing rents | -0.02 | - | -0.02 | - | -0.02 | - |
| Effect of known budget measures over the entire financial year² | 0.04 | 0.02 | 0.06 | 0.02 | 0.06 | 0.01 |
Download this table Table 2: Budget effects on CPIH, CPI and RPI 1-month rate, UK, in the financial years ending 2020 and 2021
.xls .csv4. Cumulative effects of the Budget on the CPIH, CPI and RPI 12-month rate
The following tables show the cumulative effects on the all items Consumer Prices Index including owner occupiers’ housing costs (CPIH), Consumer Prices Index (CPI) and Retail Prices Index (RPI) 12-month rates of the 2020 Budget measures that were implemented in the financial year ending 2020 and known measures that will be implemented in the financial year ending 2021. They also show the likely timing of effects on the CPIH, CPI and RPI 12-month rates, assuming all announced changes are passed on immediately and in full to consumers as soon as they come into effect. There is also the possibility of further changes being announced in subsequent Budgets, which will impact in the financial year ending in 2021.
Effects on the CPIH 12-month rate
It is estimated the known Budget measures implemented in the financial year ending 2021 will add 0.02 percentage points to the CPIH 1-month rate. This means that the CPIH 12-month rate is estimated to decrease by 0.02 percentage points because the impact of the measures implemented in the financial year ending 2020 was 0.04 percentage points.
| CPIH date | Budget measures impacting in the financial year ending 2021 (percentage point change) | Effect¹ | Cumulative effect² |
|---|---|---|---|
| Apr-20 | Increases in vehicle excise duties. | 0.02 | |
| Increases in air passenger duty. | 0.01 | 0.03 | |
| Previous year's increases in vehicle excise duties drop out of the 12 month comparison. | -0.02 | 0.01 | |
| Previous year's decreases in social housing rents drop out of the 12 month comparison. | 0.02 | 0.03 | |
| Jan-21 | Removal of VAT from women's sanitary products. | -0.01 | 0.02 |
| Mar-21 | Previous year's increases in tobacco duties drop out of the 12 month comparison. | -0.04 | -0.02 |
Download this table Table 3: Cumulative effect of Budget changes on the CPIH 12-month rate, UK, in the financial year ending 2021
.xls .csvEffects on the CPI 12-month rate
It is estimated the known Budget measures implemented in the financial year ending 2021 will add 0.02 percentage points to the CPI 1-month rate. This means that the CPI 12-month rate is estimated to decrease by 0.04 percentage points because the impact of the measures implemented in the financial year ending 2020 was 0.06 percentage points.
| CPI date | Budget measures impacting in the financial year ending 2021 (percentage point change) | Effect¹ | Cumulative effect² |
|---|---|---|---|
| Apr-20 | Increases in vehicle excise duties. | 0.02 | |
| Increases in air passenger duty. | 0.01 | 0.03 | |
| Previous year's increases in vehicle excise duties drop out of the 12 month comparison. | -0.03 | 0.00 | |
| Previous year's decreases in social housing rents drop out of the 12 month comparison. | 0.02 | 0.02 | |
| Jan-21 | Removal of VAT from women's sanitary products. | -0.01 | 0.01 |
| Mar-21 | Previous year's increases in tobacco duties drop out of the 12 month comparison. | -0.05 | -0.04 |
Download this table Table 4: Cumulative effect of Budget changes on the CPI 12-month rate, UK, in the financial year ending 2021
.xls .csvEffects on the RPI 12-month rate
It is estimated that the Budget measures implemented in the financial year ending 2021 will add 0.01 percentage points to the RPI 1-month rate. This means that the RPI 12-month rate is estimated to decrease by 0.05 percentage points because the impact of the measures implemented in the financial year ending 2020 was 0.06 percentage points.
| RPI date¹ | Budget measures impacting in the financial year ending 2021 (percentage point change) | Effect² | Cumulative effect³ |
|---|---|---|---|
| Apr-20 | Increases in vehicle excise duties. | 0.01 | |
| Increases in air passenger duty. | 0.01 | 0.02 | |
| Previous year's increases in vehicle excise duties drop out of the 12 month comparison. | -0.02 | 0.00 | |
| Previous year's decreases in social housing rents drop out of the 12 month comparison. | 0.02 | 0.02 | |
| Dec-20 | Removal of VAT from E-publications | -0.01 | 0.01 |
| Mar-21 | Previous year's increases in tobacco duties drop out of the 12 month comparison. | -0.06 | -0.05 |
Download this table Table 5: Cumulative effect of Budget changes on the RPI 12-month rate, UK, in the financial year ending 2021
.xls .csv5. Background notes
CPIH extends the Consumer Prices Index (CPI) to include a measure of the costs associated with owning, maintaining and living in one’s own home, known as owner occupiers’ housing costs (OOH), along with Council Tax. Both are significant expenses for many households and are not included in the CPI.
The CPI is a measure of consumer price inflation produced to international standards and in line with European regulations. First published in 1997 as the Harmonised Index of Consumer Prices (HICP), the CPI is the inflation measure used in the government’s target for inflation. The CPI is also used for purposes such as uprating pensions, wages and benefits and can aid in the understanding of inflation on family budgets.
In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index and its derivatives have been assessed against the Code of Practice for Statistics and found not to meet the required standard for designation as National Statistics. The RPI continues to be used for purposes such as the indexation of pensions, rents and index-linked gilts.
This note is prepared as a helpful guide to users of the CPIH, CPI and RPI. The Office for National Statistics accepts no liability whatsoever for losses of any kind arising as a result of reliance on this note.
The effects of the Budget’s measures shown in this note are estimates.
Percentage point contributions to the CPIH, CPI and RPI 1-month change are based on average retail prices as measured in the January 2020 indices.
No estimate has been made of any price changes resulting from other Budget measures, direct or otherwise.
Back to table of contents