Beating the UK’s CPI
Inflation Rate
According to UK Consumer Price Index (CPI) data, the UK's inflation rate reached 3.9% in the 12 months leading up to November 2023, a decrease of 0.7% from October's rate of 4.6%. UK industrial price inflation was 2.6%, unchanged from October, verifying suppliers spent an average of £540.00 for every £1,000.00 spent by the public sector.
There is a great temptation to believe that costs have increased for public sector suppliers by the November 2023 CPI rate of 3.9%. However, it is important to differentiate that the CPI rate measures consumer prices, whereas industrial prices are based on supply costs.
Allowing suppliers to increase their prices by the rate of CPI will increase costs by £39.00 for every £1,000.00 spent by the public sector, even though a supplier's costs will have increased by just £15.66, based on the supplier's spend of £540.00 to generate sales of £1,000.00.
The scenario above shows that UK public sector suppliers will have increased their prices by an additional £23.34 per £1,000.00 of public expenditure when supply costs have increased by just £15.66, artificially increasing costs for the UK taxpayer by 2.334% in November 2023.
According to the National Housing Federation, cost inflation for Housing Associations amounted to 8.9% in Sept 2023. Set against this, the UK government set England’s social housing rent cap at 7% for 2023, leaving Housing Associations 1.9% worse off in real terms.
Price inflation is a critical issue for the public sector, as the amount that income can be increased is governed by the public’s ability to pay for local services, leaving the public sector unable to re-coup increased costs, which the government controls through its taxation policies set at national and local levels.
Public sector contract and framework agreement pricing clauses allow suppliers to increase their prices by the CPI rate at each anniversary date. Suppliers will invariably utilise the highest CPI rate within the previous 12 months to increase their prices, even though the rate of CPI may have been lower within the last 12 months.
The commercial risk of increased supply costs lies entirely with the public sector, resulting in the public sector having to lower the quality of public services provided or eradicate them altogether if the services cannot be maintained due to the increased costs.
B3Living’s internal cost inflation rate was reduced to 2.1% in December 2023, 1.8% lower than the CPI rate for November 2024 and 6.8% lower than the average Housing Association, to benefit customers whose services are provided at reduced costs, at the same if not higher levels of quality.
B3Living's Framework Agreement commercial pricing clauses share the commercial risk of supply cost increases by allowing suppliers to increase their prices only at the second-anniversary date of a four-year Agreement, as the Agreements contain a two-plus two-year fixed price arrangement.
According to UK Consumer Price Index (CPI) data, the UK's inflation rate reached 3.9% in the 12 months leading up to November 2023, a decrease of 0.7% from October's rate of 4.6%. UK industrial price inflation was 2.6%, unchanged from October, verifying suppliers spent an average of £540.00 for every £1,000.00 spent by the public sector.
There is a great temptation to believe that costs have increased for public sector suppliers by the November 2023 CPI rate of 3.9%. However, it is important to differentiate that the CPI rate measures consumer prices, whereas industrial prices are based on supply costs.
Allowing suppliers to increase their prices by the rate of CPI will increase costs by £39.00 for every £1,000.00 spent by the public sector, even though a supplier's costs will have increased by just £15.66, based on the supplier's spend of £540.00 to generate sales of £1,000.00.
The scenario above shows that UK public sector suppliers will have increased their prices by an additional £23.34 per £1,000.00 of public expenditure when supply costs have increased by just £15.66, artificially increasing costs for the UK taxpayer by 2.334% in November 2023.
According to the National Housing Federation, cost inflation for Housing Associations amounted to 8.9% in Sept 2023. Set against this, the UK government set England’s social housing rent cap at 7% for 2023, leaving Housing Associations 1.9% worse off in real terms.
Price inflation is a critical issue for the public sector, as the amount that income can be increased is governed by the public’s ability to pay for local services, leaving the public sector unable to re-coup increased costs, which the government controls through its taxation policies set at national and local levels.
Public sector contract and framework agreement pricing clauses allow suppliers to increase their prices by the CPI rate at each anniversary date. Suppliers will invariably utilise the highest CPI rate within the previous 12 months to increase their prices, even though the rate of CPI may have been lower within the last 12 months.
The commercial risk of increased supply costs lies entirely with the public sector, resulting in the public sector having to lower the quality of public services provided or eradicate them altogether if the services cannot be maintained due to the increased costs.
B3Living’s internal cost inflation rate was reduced to 2.1% in December 2023, 1.8% lower than the CPI rate for November 2024 and 6.8% lower than the average Housing Association, to benefit customers whose services are provided at reduced costs, at the same if not higher levels of quality.
B3Living's Framework Agreement commercial pricing clauses share the commercial risk of supply cost increases by allowing suppliers to increase their prices only at the second-anniversary date of a four-year Agreement, as the Agreements contain a two-plus two-year fixed price arrangement.
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