6.4 The Retail Prices Index (RPI) or RPIx are generally the most suitable indices for use in PPP contracts in the NHS. The RPI focuses on prices of retail goods (RPIx excludes mortgage interest payments). PPP contracts to date have been indexed to RPI as this is the index which financiers tend to be most familiar with. The best available working assumption is that funding from SGHD to NHS bodies should be expected to increase over time in line with RPI, thus RPI is an appropriate index and is currently used in planning expenditure.
6.5 These two and other indices (e.g. CPI) are acceptable indices as over the long term duration of contracts they can be expected to move broadly together. However, in the short term there may be divergences, in particular due to changes in mortgage interest rates. RPIx should mitigate such variations.
6.6 Other relevant indices which relate to specific elements of the PPP contract may be considered. However, NHS bodies should not allow the private sector to cherry pick indices. Additional indices should not lead to a direct pass through of cost increases to the public sector without the operator having the incentive to manage the effects of any cost increases. Health sector specific indices should also not be used as these will relate to cost changes across a broad spectrum of services including clinical services, rather than solely the type of services included in PPP contracts. Where additional indices are used, then the NHSScotland body should ensure that their use does not compromise the risk transfer within the scheme nor the assessment of the scheme's accounting treatment.
6.7 A factor which should also be considered is the base year from which prices are indexed during the contract. This must be negotiated as part of the deal and covered in the dialogue period. Inflation assumptions play a key role in bid evaluation and care must be taken to ensure consistency and to understand participants' approaches.