The price of a peerage has kept pace with inflation

I see that people (including a number of sitting peers like Lord Rees-Mogg) are accusing our current government of "devaluing" the honours system. I don't think that this charge holds up.

In February 1921, the UK's retail price index was 9.1, while in February of 2006 it was 194.6, an average annual rate of inflation of 3.66% compound.

On the other hand, in February 1921, Lloyd George was, selling peerages for £50,000. In 2006, we know that the 12 named donors had made £13.95m in soft loans between them and donations of at least £200,000 each. That gives a ballpark figure of £1.4m as the average cost of a peerage today. I make this a 3.95% compound rate of appreciation in the price of a British peerage. The real value of a peerage has therefore grown by just less than 0.30% per annum over the last 85 years. (I realise that peerages have never been part of the consumption basket used to calculate the RPI, but perhaps as society changes they should be).

On this basis, a peerage looks like a pretty good investment for someone with £1.4m to spare - not as good as a really good golf club membership, some of which have appreciated massively, but much better than a depreciating asset like a yacht or a couple of days' fishing rights on a decent trout river. I have not even taken into account the attendance allowances and reimbursements that House of Lords members are able to claim these days (but were not in Lloyd George's day) which ought to be counted as a dividend on the investment. They're not that much - even if you attended all 160 days and claimed the maximum £77 subsistance allowance every day this would only be £12320 which is a dividend yield of 0.9% - but it all adds to the attractiveness of a modern peerage.

So Lord Mogg has nothing to fear; despite the massive expansion in the number of peerages under New Labour, the real value of a peerage has not fallen at all. Indeed, this suggests to me that the demand for peerages is being substantially under-served and if (as seems likely) steps are taken to reduce the supply of peerages in the next few years, there may be enough excess demand to cause the price to rise. I wonder if Gordon Brown will allow peerages to be counted among the assets you can hold in a self-invested pension plan when he announces the Budget this afternoon?

Update: See comments below. You can actually hold a Scottish feudal barony (or more accurately, the land to which it is attached) in a SIPP!

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