Had the changes proposed in the ONS discussion paper of October 2012 been adopted there would have been massive disruption and dislocation of the index-linked bond market, so important for utility and infrastructure borrowers, long term investors and others. The decision to continue with the existing form of the RPI and to produce a revised index alongside it means existing contractual arrangements can continue undisturbed while the statisticians’ objective of using a mathematically superior methodology can be met. Colin Tyler, Chief Executive of the ACT said:
The ACT is delighted with the decision of the National Statistician. Whenever any change is proposed there will be a careful balancing act to be performed. The objective of any new regulation, or in today’s case a new statistic, must be weighed against its impact on the real economy and the users of that service or data.
---------- Ends ---------------- NOTES TO EDITORS 1. In the ACT’s submission to the ONS in November, the principle concern was the disruption that the proposed changes would have caused to the corporate index linked bond market. Bond terms and condition vary between different corporate index linked bonds but generally a fundamental change in the RPI is dealt with in the first instance with the parties trying to find a solution to hold each party "no better no worse". If that fails, then typically the issuer can redeem at the indexed par amount. This would have been an unwelcome development which would have caused severe dislocations in the market and present borrowers with the unattractive prospect of having to refinance large amounts of existing debt, whilst the enforced early repayment would not have benefited investors either. 2. In the context of any new regulation or legislation, the ACT has repeatedly argued that the authorities should consider the impact of any rules changes on the real economy and users of the regulated service in question. Earlier this week we have seen the Basel Committee on banking Supervision amend its Basel III rules in recognition that too harsh a rule change introduced too quickly would be unsustainable given the current state of the global economy. The ACT welcomes this pragmatic approach and hopes it can be replicated more widely.