Fears grow for high street recovery as PPI payments begin to drop off

The gross payouts will be £2.25bn less in 2014 than in 2013

When the payouts by banks for misselling Payment Protection Insurance dry up the high street could be hit by a spending drought.

Retailers including John Lewis, Currys PC World and Argos all hailed the previous six months as one of the strongest in recent years for sales of electricals and white goods, while retail sales according to the Office for National Statistics are also growing at record rates.

However, experts are suggesting the boost in spending is down, in part, to the extra £12.5bn in the economy paid out by banks for misselling Payment Protection Insurance and this could soon dry up. They are warning that with 70 per cent of payments already made, the speed of growth in retail could be hit as the payouts slow and wages continue to rise below inflation.

Paul Turner-Mitchell, a retail expert and co-author of the Grimsey Review, said PPI payments in the first 10 months of last year was around £4.7bn, while the Office for National Statistics’ Retail Sales Index found real term spending was up £1.03bn. He explained: “With the average payout pushing £3,000, undoubtedly, the compensation is providing some respite for households where real income has fallen. By definition these are usually lower income families.”

However, he warned: “Given that 70 per cent of PPI payments have now been awarded and paid to claimants, consumer spending will soon be losing a powerful stimulus.”

Matthew McEachran, retail analyst at N+1 Singer, agreed and suggested around £5bn is left to distribute to claimants, which he expects to be spent this year.

He said: “Since autumn 2012 we have been flagging the benefits of PPI windfalls on expenditure. The magnitude of the payouts, and the likely bias towards middle-aged consumers in mid-to-low socio-economic groupings, led us to believe there would be a high propensity for the money to be spent. The fact of the matter, though, is that the gross payouts will be around £2.25bn less in 2014 versus 2013.”

Along with increased spending in electricals, people also appear to have an increased appetite for cars and holidays.

Hassan Jiva, director at specialist law firm MRH Solicitors, who currently has around 20,000 outstanding claims for PPI misselling on his books worth £60m, said: “There is no doubt the compensation is fuelling consumer spending from what our clients are telling us and that spend ranges from white goods to new kitchens to family holidays.”

Over the last few weeks, retailers have been revealing a relatively buoyant Christmas period, with customers keen particularly on electricals.

Seb James, chief executive of Dixons – owner of Currys PC World – said earlier this month that white goods sold better than expected and one TV was sold every seven seconds on Boxing Day.

While over at Argos, Terry Duddy, chief executive of parent company Home Retail Group, said that sales were up 3.8 per cent over Christmas and electronics was its best-selling division.

However, Nick Hood, business risk analyst at Company Watch, warned: “They now face a long haul until Christmas 2014 comes to their rescue. This will be hard enough for some, without a sudden loss of the artificial boost to consumer spending from PPI compensation.”

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future