Heading into the Christmas season, we may actually see the silver lining to the PPI policy scandal. Specifically, consumers are walking around with a little extra cash in their pockets, courtesy of the banks involved in the scandal.
It has been heard in recent weeks that, in an effort to boost a declining economy, the government has considered organizing “helicopter drops of money.” In other words, if this idea goes through, we will all be receiving a nice sum of money from Chancellor George Osborne in the near future for our Christmas shopping.
Just last week, Sir Mervyn King unleashed the full power he holds in office to put a stop to the plans. He argued that the handing out of huge wads of non-recoverable cash to consumers would be a dangerous and inflationary move that would put the Bank at risk for bankruptcy.
Of course, King can rest easy at the moment because there is actually no need for the Bank and Treasury to be dropping money anywhere. This payout is going to consumers via the high-street banks involved in the PPI policy scandal.
According to the FSA, £6.5 billion worth of compensation has been handed out since the beginning of 2011, with the Lloyds Banking Group paying £5.3 billion of that sum. Although total provisioning for PPI claims currently stands at over £12 billion, it is expected that that number will rise to at least £15 billion. If the banks pay out two-thirds of the money they have set aside to their customers, we should expect to see a £10 billion potential demand boost.
A £12.9 billion in PPI compensation may be seen as modest, especially considering a £1.5 trillion economy, but it is still substantial enough to see a noticeable increase in consumer spending. The average person is seeing a PPI payout of £2,000-£3,000. It’s a nice sum after years of watching living standards spiral downward.