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PPI payouts knock down Lloyds profits but boost British shoppers PPI payouts knock down Lloyds profits but boost British shoppers
(6 months later)
It is difficult to remember a year when the British consumer was forced to cope without the proceeds from a mis-selling scandal.It is difficult to remember a year when the British consumer was forced to cope without the proceeds from a mis-selling scandal.
The payment protection insurance (PPI) scandal has proved to be the most lucrative, punishing banks with fines of £22.5bn and administrative costs of another £8-9bn for attaching the expensive insurance cover to credit cards and loans without consumers’ knowledge.The payment protection insurance (PPI) scandal has proved to be the most lucrative, punishing banks with fines of £22.5bn and administrative costs of another £8-9bn for attaching the expensive insurance cover to credit cards and loans without consumers’ knowledge.
Related: FCA unable to estimate future PPI cost to banks
Lloyds Banking Group has just added another £4bn to the total cost after it said another tranche of cash would be needed to satisfy regulators.Lloyds Banking Group has just added another £4bn to the total cost after it said another tranche of cash would be needed to satisfy regulators.
According to the Financial Conduct Authority, the total payout in each year since 2011 averages £4.5bn. About 12 million people have secured compensation, with an average payout of £1,875.According to the Financial Conduct Authority, the total payout in each year since 2011 averages £4.5bn. About 12 million people have secured compensation, with an average payout of £1,875.
In 2012 the total reached £6.3bn, which is the equivalent to a 1.5p cut in the standard rate of tax. At the time, the National Institute of Economic and Social Research said the refunds could push GDP growth 0.1-0.2% higher.In 2012 the total reached £6.3bn, which is the equivalent to a 1.5p cut in the standard rate of tax. At the time, the National Institute of Economic and Social Research said the refunds could push GDP growth 0.1-0.2% higher.
A survey by the money-saving website VoucherCodesPro in 2014 examined more closely what happened to the money. It found that most people rushed out and bought a holiday. Next on the list was a new car, followed by buying home appliances such as fridge freezers, followed by paying bills.A survey by the money-saving website VoucherCodesPro in 2014 examined more closely what happened to the money. It found that most people rushed out and bought a holiday. Next on the list was a new car, followed by buying home appliances such as fridge freezers, followed by paying bills.
The survey also found that it only took two and a half weeks on average to spend the money from a settled PPI claim. Only 12% of people put any of the windfall into a savings account.The survey also found that it only took two and a half weeks on average to spend the money from a settled PPI claim. Only 12% of people put any of the windfall into a savings account.
Looking back at the trends of recent years, it is noticeable that the sales figures for holidays and cars have soared and provided the backbone for GDP growth.Looking back at the trends of recent years, it is noticeable that the sales figures for holidays and cars have soared and provided the backbone for GDP growth.
But the payouts are only one element, albeit the largest, of the PPI boost to the economy. The regulator and the banks have spent around £4bn processing claims and the private claims companies, infamous for urging bank customers to seek compensation with pestering phone calls, have grabbed an estimated £5bn for themselves.But the payouts are only one element, albeit the largest, of the PPI boost to the economy. The regulator and the banks have spent around £4bn processing claims and the private claims companies, infamous for urging bank customers to seek compensation with pestering phone calls, have grabbed an estimated £5bn for themselves.
Related: The PPI claims deadline – all you need to know
Such was the boom in jobs that, in 2014, it registered in the official labour market statistics as one of the fastest growing areas of employment. These workers will have spent their wages and paid tax, increasing GDP further.Such was the boom in jobs that, in 2014, it registered in the official labour market statistics as one of the fastest growing areas of employment. These workers will have spent their wages and paid tax, increasing GDP further.
Maybe that is why George Osborne is keen to offer Lloyds shares owned by the government at a discount. He can see the PPI effect waning and he recognises the need for a multi-billion-pound boost to the economy – not from the exchequer, which is cutting back on spending, but by selling a taxpayer-owned asset and calling it a gift.Maybe that is why George Osborne is keen to offer Lloyds shares owned by the government at a discount. He can see the PPI effect waning and he recognises the need for a multi-billion-pound boost to the economy – not from the exchequer, which is cutting back on spending, but by selling a taxpayer-owned asset and calling it a gift.
It was the same in the 1980s, when Margaret Thatcher’s privatisations started the cascade of funds. In the 1990s, there was the demutualisation of building societies and countless insurers.It was the same in the 1980s, when Margaret Thatcher’s privatisations started the cascade of funds. In the 1990s, there was the demutualisation of building societies and countless insurers.
When the Halifax turned itself into a PLC in 1997, 7.5 million customers received shares worth £1,500 and the handout was worth 2p off the standard rate of income tax. One estimate found that 12% of recipients saved the money, but everyone else spent it. Osborne will hope he can sell the Lloyds shares and get a good price for them, in order to boost incomes and offset the worst of his austerity measures.When the Halifax turned itself into a PLC in 1997, 7.5 million customers received shares worth £1,500 and the handout was worth 2p off the standard rate of income tax. One estimate found that 12% of recipients saved the money, but everyone else spent it. Osborne will hope he can sell the Lloyds shares and get a good price for them, in order to boost incomes and offset the worst of his austerity measures.