British economists are starting to voice concerns about what will happen when the PPI money runs out.
The retail economy is still receiving monthly injections of over £⅓ billion in PPI compensation But the claims deadline will slowly strangle the source of funds which has so far pumped more than £36 billion back into the economy.
The compensation is not exactly ‘free money’ because consumers are being paid back money which was wrongly taken from them when they were mis-sold their PPI policy, plus the interest that money would have earned if it had not been taken from them.
But for many consumers their payout was treated like a lottery win and spent on hundreds of things – anything from cars to holidays, deposits for new homes and home improvements, weddings of a lifetime and, in some cases, successful IVF treatments!
The millions will continue to roll in for some time yet as the official FCA figures are two months behind and there are possibly millions of claims still working their way through the system.
But eventually the last claim will be paid out and the bonanza will come to an end.
£200 a second
Times reporter James Coney said: “At the peak of the payouts, about £200 a second was being dished out. So what have we done with that money?
“Private car sales shot up from 845,879 in 2011 to more than 1.1m in 2017, while high street spending figures showed a sharp rise from the time PPI compensation started flooding into bank accounts in 2012.
Both started falling in 2018 — just as PPI payouts did.”
What happens next?
What happens next is what is worrying the economists.
There are already suggestions that the economy might be slipping back into recession and they are bothered that this is an added negative factor.
Nomura’s chief economist, George Buckley, told Mail On Sunday finance expert Helen Cahill: “The PPI deadline could trigger a 0.3% decline in consumer spending.”
Helen added: “The banks are turning off the taps just as fears grow of a recession next year. An economic downturn could happen sooner if the UK leaves the EU without a deal.
“Analysis also found thousands of jobs are at risk as many roles created to deal with PPI complaints are no longer required after August 29th, further weakening the economic outlook for Britain.
“Industry sources said banks have employed around 10,000 workers to deal with compensation claims. It is thought that Lloyds alone has around 5,000 contract workers dedicated to the task.”
The downturn in employment will affect the disposable income of tens of thousands of workers.
James Hick, of Manpower Group, said: “The unprecedented era of hiring we saw to deal with PPI and other mis-selling charges has peaked and is fast tailing off.
The impact on jobs may go beyond the banks, to sectors such as retail and automotive, which experienced increased sales with more people flush with disposable income.”
Other experts commented on the reputational damage suffered by the banking industry because of the scandal.
Banking analyst Ian Gordon said shareholders had ‘endured straightforward value destruction’ for nine years. While market analyst David Bulk commented: “This is supposed to be a service sector and the reputational damage done to the banks has been horrific.
I think it could take 20 years for them to get over it.”