Dr. Claire Keane:

One of the main advantages of automatic indexation is that it gives people certainty, in that they know that their incomes are going to keep pace with either wage growth or price growth. If an arbitrary decision is made each year, a little of that certainty disappears but there would be an advantage for the Exchequer in knowing that things were affordable. If there is price or wage growth in a particular year but the economy is in trouble, an independent body like that could decide not to give an increase because the economy could not afford it or would have to borrow. Alternatively, increases could be weighed out. For example, let us say there is deflation and prices fall. The body might decide that it does not want to cut social welfare rates. It could keep them constant and decide on a smaller increase the following year. Having a body to consider such matters would be an advantage.

I am not trying to plug what Dr. Doorley and I do, but we work a great deal with micro-simulation models. They allow us to take a representative sample of the population and determine how much indexing would cost if we believed inflation was going to be X percent next year. This sort of research could feed into such a body, give it options and show it that, if it were to increase rates in line with prices, it would cost this much and if they were to increase with wage growth, it would cost this much. That work can be done a year in advance. We carry out a great deal of analysis before a budget happens.

The advantage of a commission or body like the one the Deputy referenced would be budget sustainability, in that we would not be giving increases in years where we might not be able to afford them.