A former Treasury adviser warned yesterday of serious flaws in the government measure of inflation that have left millions out of pocket and masked the true scale of plunging wages.

Dr Mark Courtney said there was no statistical case for the switch from the retail price index (RPI) to the lower consumer price index (CPI) - now used to calculate social security payments, public-sector pensions and pay rises.

An average 0.9 per cent gap between the two measures was "entirely" because of an underestimation of real price rises under the CPI, he warned.

The controversial 2011 switch was announced by cost-cutting Chancellor George Osborne as a way "to put the whole welfare system on a more sustainable and affordable footing."

Crucially, CPI fails to include housing costs - a major part of most people's day-to-day spending.

RPI takes into account those costs but has now been officially sidelined after being branded "incompatible with international standards" by the UK Statistics Agency.

But Dr Courtney maintained that it was "as good a consumer price index as one can get," adding that statistical arguments used to justify the switch have since been discredited.

Trade union Unison general secretary Dave Prentis demanded an urgent review.

"This may seem like an irrelevant squabble about statistics but it has huge consequences," he said.

"The public-sector pay cap is set to continue until 2016 while Treasury-compiled forecasts show that RPI is predicted to rise even faster at more than 3 per cent from next year through to 2018, leaving workers and pensioners hundreds of pounds worse off."