Inflated inflation? A465 service payments set to rise on RPIx

04/12/2020
Rhodri Clark

Annual Service Payments (ASPs) for the new A465 dualling contract are set to rise substantially in real-terms because the Welsh Government will apply the Retail Prices Index (RPI), which the Office for National Statistics urges officials not to use.

The ASPs are fixed at £38m in current prices, totalling £1.14bn over 30 years, excluding VAT and inflation.

However, inflationary increases will be pegged to RPIx (the RPI excluding mortgage interest payments), which has increased by 59% more than the official Consumer Prices Index over the past five years.

And the gap between RPIx and CPI inflation appears to be widening. It was 48% when measured over the last 10 years.

Total A465 ASPs over 30 years are on course to be tens of millions of pounds higher than had CPI been used. Explaining the use of RPIx instead of CPI, a government spokesman said:

‘Historically RPIx has more accurately reflected the inflation exposure of the types of activities undertaken in road construction, operation and maintenance and is the market recognised/expected inflation measure based on other PPP road projects in the UK.’

The scheme will add a fourth lane to 11 miles of road between Dowlais and Hirwaun.

The estimated construction cost of the scheme has risen to £590m, compared with ‘in excess of £550m’ last month.

The Government spokesman said it was more difficult to isolate construction cost within the design, build, finance, operate contract than in a traditional design and build contract.

‘Additional work has been undertaken to complete this exercise which has identified the £590m figure.’

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