Halifax to fuel surge in consumer spending

Consumer spending looks set to receive a much bigger boost than expected from the current wave of demutualisation windfalls. A sharp rise in the forecast value of the handouts, and higher than expected numbers of investors planning to cash in their shares immediately, means the economy is poised for an unprecedented one-off surge.

More than 1.75 million Halifax investors, 23 per cent of the total, have so far indicated to the society that they want to sell their shares before dealings begin next week. That is less than the 27 per cent who bailed out of the Alliance & Leicester at the first opportunity but is considerably higher than earlier estimates.

If recent expectations that the shares could start trading at around 700p are proved correct, the 568 million shares to be sold at an auction of institutional buyers on Friday could put pounds 4bn into members' pockets. Experts believe about half of that could be spent immediately on holidays, home improvements and consumer durables.

Yesterday's Green Budget from the Institute for Fiscal Studies and Goldman Sachs said expected payouts from this summer's clutch of building society and insurance flotations could amount to pounds 28bn, much higher than previous expectations of around pounds 21bn. It said taxes might have to rise by pounds 6bn just to offset the windfalls' boost to the economy.

Salomon Brothers put a slightly lower figure on the spending spree yesterday, expecting up to pounds 4.5bn of the total handouts to be spent in the first year. Even so that represented more than twice as much as the Bank of England forecast recently before a surge in the stock market value of financial services companies sent the value of free shares spiralling.

The attention of Halifax members has been focused by the unexpectedly strong performance of Alliance & Leicester shares since they floated. A&L members who sold before dealings began received 533.7p each for shares that started trading at 570p and are now worth 637p.

It had been thought that the strong run enjoyed by A&L would encourage Halifax members to hang on to their shares in the hope of further gains. With the City spread betting specialist IG Index forecasting a value of 700p on Halifax shares compared to official estiamates of as little as 390p, however, many members are thought to have been tempted to cash in.

At 700p, the minimum handout of 200 shares would be worth pounds 1,400, pounds 500 more than expected. The average windfall of 300 shares would be worth more than pounds 2,000.

The value of financial services shares has been boosted by an expected rush by institutions to buy stock in the sector in order to maintain their weightings in the enlarged sector. Even without that boost, however, trading for banks is currently buoyant.

The Halifax shares that investors do not want to keep will be sold on their behalf to institutional investors and to Stock Exchange member firms, but not to private investors, in a special auction this week. The closing date for bids is 6pm on 30 May, and the proceeds will be averaged and credited to investors' Halifax account on 6 June, or paid by cheque if investors do not have an appropriate account.

Another 69 per cent of Halifax investors indicated they want to keep the shares. This includes 49 per cent who have agreed to have their shares held by the Halifax in its special shareholder account. Another 20 per cent have opted to receive the actual share certificates, which will enable them to sell through a broker when they want.

The remaining 8 per cent failed to return their forms by the deadline at noon on Bank Holiday Monday. They will still be able to claim their shares at any time in the next three years, but may not now be able to participate in the auction for cash or get their share certificates in time to sell in the market next week.

Investors who asked for share certificates have 42 days from next Monday to lodge them without paying dealing costs into a Personal Equity Plan, where they become exempt from income tax on dividends and from liability to capital gains tax on eventual sale. As free shares, the windfalls will not use up any of the pounds 9,000 annual PEP allowance.

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Green Budget, page 21