SPENDING limits imposed on the States could be changed under a proposal announced by Treasury minister Charles Parkinson.

It is currently based on RPI, but the department has to guess what the rate is likely to be on its target date of June in the year ahead when deciding how much to give others to spend.

Deputy Parkinson (pictured) favours using RPIX to avoid the dramatic fluctuations caused by Bank of England interest rate cuts, but based on current rates that would greatly relax any spending restraint.

One of the key planks of zero-10 is keeping expenditure at RPI or less.

‘In the middle of 2008, we had to guess what RPI would be on 30 June 2009. At the time we were doing this, RPI was 5.5% and it went up in September to 5.8%, so we guessed that 30 June 2009 would be 4% and that was the basis on which budgets for 2009 were prepared,’ said Deputy Parkinson.

‘Since 7 October 2008, the Bank of England has reduced interest rates from 5% to 0.5%, which flows directly through into the mortgage interest component of RPI with a result that RPI in the December quarter fell in Guernsey to 1.2% and may well during the course of this year go negative.’

The situation raised two issues, he added. ‘One is of a government policy which is based on guessing what the rate of inflation will be next year – and we haven’t got a crystal ball – and the other is whether RPI is the right measure of inflation to use.’