It would be unrealistic to expect government to use one standard measure of inflation to set increases in charges and fees for public services.

That was the message from Treasury Minister Alfred Cannan as the fall-out continues over Manx Utilities’ announcement that water rates are to rise by 6.4 per cent in line with RPI rather than CPI, which was just 1.9 per cent in February.

Treasury and Cabinet Office are looking at the scope for issuing consistent guidelines for departments to use over which inflation measures may be most appropriate for cost control and charging policies.

Julie Edge (LibVan, Onchan) suggested a directive should be sent to all departments and statutory boards.

’People of the island are not going to welcome any further high inflationary increases, so the sooner this decision is made the better,’ she said.

But Mr Cannan said: ’I think this idea that government is going to somehow issue a magical figure, which will apply irrespective of the business cases and of the market conditions of certain goods that are being supplied, is one that is an unrealistic expectation, I would suggest.

’What we are trying to do is just to indicate what our preferred measure of inflation is.

’I certainly do not envisage that we will be issuing directives left, right and centre that costs can only go up by inflation.’

He said that would send out the wrong message to departments that might seek to raise costs when they might not actually have to, but it would also potentially put government in a difficult position - should, for example, the price of oil and gas dramatically outstrip the level of one particular measure of inflation.

This would cause problems for utilities or for public transport in costs and returns.

Lawrie Hooper (LibVan, Ramsey) asked the Minister: ’Is it his intention then that the Treasury is considering issuing guidance for appropriate measures to be used in various circumstances to ensure that departments and statutory boards can substantiate their use of any particular measure when they are stating they are basing an increase on inflation?’

Mr Cannan replied: ’If we do come up with a preferred measure of inflation it will be for guidance only. If we come up with a measure, it will be purely a preferred measure of inflation which will help us determine and guide our budgetary decisions.’

The Minister said there were now three indices published every month: CPI, RPI and RPIJ, and the matter is becoming further complicated because in the UK the Office of National Statistics will now use CPIH as its preferred measure of inflation from March 21 this year.