It has been suggested that the scandal over the mis-selling of payment protection insurance (PPI), with average payouts of £2,750, are giving people’s cashflows a much needed shot in the arm.
With the continuing high living costs, high unemployment and below-inflation pay rises, it has been reported that the scandal – which has led to some £10 billion being set aside by banks to cover claims being made by people who were sold insurance they did not want or need – presents a silver lining. I find it staggering that this is being billed as part of the economic solution! Yes, it adds much needed cash into the system but it is only a one-off hit. Surely we should be looking for more sustainable growth solutions?
The National Institute of Economic and Social Research (NIESR) said that even by a conservative estimate, a £10 billion PPI payout in 2012 could have the effect of raising GDP by 0.1%. Simon Kirby, a senior research fellow at the institute, said: “PPI payments are a boost to household finances which are broadly the same as having a temporary tax cut”.
Perhaps we should be asking for a more permanent tax cut as part of a package of measures to stimulate growth?
Some £4.8 billion in PPI compensation had been paid out by May this year and £5 billion is still to be claimed, according to consumer group Which? The body has been campaigning to make it easier for people to make claims directly rather than use claims management companies which often take a quarter of any payout. Looking at the system now in place Which? Appears to have succeeded in simplifying the system however, this has done nothing to tackle the backlog facing the Financial Ombudsman Service (FOS). The FOS has confirmed that it expects to settle a record number of PPI cases this year at around 130,000, but those progressing claims are facing some 12 to 18 months for decisions. Making the process easier is only part of the issue. Ensuring that demand can be dealt with in a timely fashion is also key to customer satisfaction, and if you believe that it presents a boost to GDP as opposed to people using it to pay off outstanding debt, essential to economic stimulation.
