Dr. Karina Doorley:

There are a number of ways to address that. I am not sure which might be considered the best. It might depend on how timely the CPI information you are receiving is. In the UK there are currently calls to wait until April when the increase is due to come in, see what the most recent information is then and use that figure rather than using the average over the last year. Thus, depending on when your information on whatever index is chosen comes in, that is always an option. You can always adjust closer to the time the increase is coming in and make use of the most recent information. In situations like the present one, where we expect much of the inflation that is occurring to be transitory as it is due to energy price increases, there might be other ways to address that specifically rather than indexing the whole tax-benefits system. You could use, say, the historic index for indexing the whole tax-benefits system and if we know there is a significant portion of transitory inflation at the moment that is driven by energy prices, then there might be other instruments to use in the tax-benefits systems for that purpose, such as fuel allowance or other targeted measures for low-income families who are less able to switch how they are heating their homes, fuelling their cars or whatever it is.