How changes to RPI could impact family law
Upon divorce or the dissolution of civil partnerships, a court can make wide ranging financial orders, including those for periodical payments. The amount will be set at the time of the order but there is the possibility that the figure will decrease if it is not reviewed. As such, provisions for automatic annual variation are often included, the variation has usually been linked to the increase in the Retail Prices Index (RPI).
The Retail Price Index (RPI) will be replaced by the Consumer Prices Index including Housing costs (CPIH) on 1 April 2021, in the final stage since Ofgem since it commenced consultations in March 2018.
RPI has long been regarded by the ONS as a “very poor measure of general inflation” and its use has been discouraged. This is because the evidence suggests that RPI overstates inflation, which is evident from the differing assumed inflation rates of CPIH in the Final Determination at 2.02%, and RPI which is assumed at 2.85%.
CPIH is the most comprehensive measure of price change in the UK’s economy and has been the ONS’ lead measure of consumer price inflation since 2017. The CPIH builds on the Consumer Prices Index (CPI) by including Council Tax, and the owner’s occupier’s housing costs, which is a measurement of the costs associated with maintaining, living in, and owning a home.
The change from RPI to CPIH could affect financial orders, particularly for periodical payments, which often use RPI as an indicator of inflation in relation to the adjustment of maintenance over time.
If you believe this may affect you, or have any questions about what this change could mean for you, please contact Carol Ellinas, Lucy Hoare or Andrew Miles from our family department who will be happy to assist.