Inflation indices and lump sum fees update to April 2023

[Robert Holden]

Inflation and Fees (a revised version of a post of May 2022 with figures updated to 15 April 2023)

Having worked through the 1970s (when inflation rose to 27% per annum in 1976) I offer these thoughts and would welcome comments please. It is a time of inflation (currently above 10% per annum) and anyone putting fee bids should be aware of what is happening. go to the Office of National Statistics (ONS) for the national picture, for CPIH, CPI,  and RPI, The figures are published monthly so in mid April the March 2023 figures were published as follows:

• CPIH Consumer Price Index including owner occupier’s housing costs: 9.2% per annum
• CPI Consumer Price Index: 10.4% per annum
• RPI Retail Price Index: 13.8% per annum

Each of these indices is a basket of prices of consumer goods. Clearly of these indices currently the RPI is the most favourable, but because  RPI does not meet international statistical standards, since 2013 the Office for National Statistics no longer classifies it as a "national statistic", and instead emphasizes the Consumer Price Index. 

However, the LI Landscape Consultant’s Conditions of Appointment (2018) refers to the Average Earnings Index for both time fees (clause 4.4) and lump sum fees (clause 4.7) and states they shall be revised at 12 month intervals. It does not give a source for the Average Earnings Index, however, one assumes this may refer to the Office of National Statistics  figures for Average Weekly Earnings. This is published with a two month delay so in April 2023 the latest figure was that for March 2023 with an inflation figure of 5.9% for the whole economy, but refer to the source and it is more complicated: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/february2023

Better than nothing but not as high as the CPI or RPI figures. Closer to construction is the information in the RICS Building and Construction Information Service (BCIS) at a subscription rate, larger practices may subscribe or one might be able to obtain figures from a QS. 

However, the LI Conditions of Appointment also address late payments by the client as follows: '5.10 Late Payment: If the Client does not pay the agreed amounts when properly due the Landscape Consultants can apply interest on the full payment due in accordance with the Late Payment of Commercial Debt (Interest) Act 1998 at a daily rate of 8% per year above the Bank of England base rate until payment is received.' Current Bank Rate (15 April 2023) is 4.25% so add 8% = 12.25% which is worthwhile prompt to late payers. This is commonly known as Statutory Inflation. The term for payment under the LI Conditions of Appointment is within 14 days (as clause 5.4). 

The other thing one can do is not to sign for long term fee agreements, i.e. just sign up for each stage of work using the LI 2018 Scope of Services, however, this has its downside in that your commissions will each be for a shorter term, and so such an option offers less long term security. Landscape Maintenance contracts for work and for fee agreements can be for five years. Arguably it is better to sign up for longer term for financial security, but to inflation index any fixed fees (indeed the LI Conditions by Appointment proposes such revision every 12 months).

Sources:

Office of National Statistics ref. https://www.ons.gov.uk/economy/inflationandpriceindices

Office of National Statistics Average Weekly Earnings: ref. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours

RICS Building and Construction Information Service: https://www.rics.org/uk/products/data-products/bcis-construction/bcis-online/

Inflation forecasts: 

Bank of England https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising  (15 April 2023)  

Office for Budget Responsibility  https://obr.uk/forecasts-in-depth/the-economy-forecast/inflation/ (15 April 2023)

Edited April 21 by Robert Holden