NAC Finance Committee Highlights: Inflation And You

Phil Williams discusses inflation measures and how they relate to your Annual and Health Grants

Many of us have forgotten about inflation, but in the 1970s it was rampant and peaked at just over 25% per annum. This is not to worry you but rather to remind everyone there has been rising and high inflation before.

Inflation is the term used to describe the increase in prices over time.

There are many different measures of inflation but here, I am looking at three in particular; the Retail Prices Index (RPI), the Consumer Prices Index (CPI) and the Consumer Prices Index with Housing Costs (CPIH). These are all different so, for example, last month RPI was 8.2%, CPI was 6.2% and CPIH was 5.5%.

RPI is statistically flawed and regarded to overstate inflation. It is now a national statistic rather than an official inflation measure. However, the government still uses it for several purposes. Last year, the Chancellor announced plans to bring RPI into line with CPIH by 2030.

RPI is important to the beneficiary annual payment and grant

But, RPI is very important to beneficiaries as the annual payments from Diageo and the Annual Grants each April go up in line with this inflation measure – calculated by comparing the RPI in the preceding September with the position 12 months previously.  Very unusually, inflation has risen rapidly in the 6 months between October and April.

The inflation rates are calculated by looking at a basket of goods and services. These create an ‘average’ as it were. At the March Finance Committee meeting, I pointed out that the rising energy costs will have a significant disproportionate impact on many beneficiaries who might be at home more often in the day, wear nothing on their feet and also find excessive layers on their upper body restrictive. Several beneficiaries also have physiological issues controlling their body temperature. This point will be made to Diageo in the current discussions.

The beneficiary Health Grant is affected by alternative inflation measures

The Health Grant was very unusual in that, when it was established, the funding allocated each year was increased by an inflation measure called the GDP deflator. As we know, in England the Chancellor has confirmed that the Health Grant will be payable for life rather than for the next ten years, with a review every four years. This inflation measure will be changing to CPIH for the first four-year period, but we will have the opportunity at the first four-yearly review to discuss alternative inflation measures. This year, the four UK Health Departments agreed an 8% increase in the Health Grant to reflect your increasing health and wellbeing needs.

Please do remember to use or draw your Health Grant as soon as possible after 1 June. This is intended for your use only and does not pass to your family or estate if you pass away!

If you have any questions, contact me or members of the NAC on email or the Trust Finance Team on 01480 474074.

Read more from the NAC in the full Spring 2022 Newsletter (PDF)


See more NAC Committee highlights