`Windfalls will be saved not spent'
Monday 24 February 1997
According to a survey by Mori and analysis by Salomon Brothers, the windfalls will be saved rather than spent and will add just 0.5 per cent to consumption rates. Those windfalls which are spent would be used for foreign holidays and home improvements, with smaller sums spent on consumer durables, cars and clothes, the survey found.
Initial forecasts from City economists had put the boost to consumption at 1.0 per cent or more, leading many to predict a boost to the feel- good factor in the run up the general election.
While only Alliance & Leicester will have paid out its share bonanza before the election, the others - Woolwich, Northern Rock and Halifax - follow in quick succession.
The 9 million or so members of Halifax vote today on the society's pounds 14bn flotation plans, which on its own provides the single biggest boost to share ownership in the UK.
The effect of the Halifax's payout in June, when 8.5 million people will receive shares worth an average of pounds 1,300 each, combined with the windfalls from the other societies, has been complicating economists' forecasts for spending, economic growth and inflation over the next year or so.
The sheer scale of the bonanza is the problem as, theoretically, if all the shares were cashed in at once, the payouts would be equivalent to a temporary 11p cut in the basic income tax rate.
"If all of the windfalls are spent, adding about 4.0 per cent to consumption, there would be massive knock-on effects on capacity use, prices and the current accounts," the Salomon researchers said.
The Mori poll established that, in general, the people expecting to receive windfalls were middle-aged and richer than the overall population.
More significantly, when broken down in social class - used as a proxy for income and wealth - the survey showed that 45 per cent of the high income AB group expect to benefit from the payout. Just 17 per cent of the DE, low income, group expect to receive free shares.
The biggest payouts are also expected to go to people who are middle- aged, richer and more financially sophisticated, which suggests that a large proportion of the funds will be saved rather than spent.
The survey showed that only 12 per cent, or one in eight, of those who expect to receive a windfall would sell their shares immediately, while a similar number intended to sell the shares over the next 12 months.
This implies that only 10 to 15 per cent of the windfalls will be spent, much lower than the 25 per cent which had been used for previous estimates.
According to the Salomon analysts this suggested that current estimates of GDP growth of 3.4 per cent may now be too high and that interest rates may only need to rise by half a percentage point, rather than the 0.75 expected at the moment.
"The survey results - and assuming that sterling stays around current levels - tilt the odds in favour of a total hike of 0.5 per cent," the research said.
Halifax's special general meeting at the Sheffield Arena today is likely to see protests from disabled groups that are furious over the denial of payouts to people whose accounts are held in trust.
But even though more than 50 per cent of the society's investing members - more than 3.3 million - must vote in favour for the flotation to proceed, such protests are unlikely to derail Halifax's flotation plans.
- 1 Howard Jacobson: Let's see the 'criticism' of Israel for what it really is
- 3 Belgium fan Axelle Despiegelaere lands L'Oreal campaign after World Cup viral photo
- 4 Britney Spears sings 'Alien' without Auto-Tune in embarrassing leaked audio clip
- 5 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
Instagram of US airport security chiefs: Lipstick knives and IED training kits among items seized
Game of Thrones author George RR Martin says 'f*** you' to fans who fear he will die before finishing Westeros saga
Mick Jagger denies being World Cup curse and reason for Brazil’s embarrassing defeat
Israel-Gaza crisis: ‘We just want it to end… We don’t deserve to live like this’
Israel-Gaza crisis: Eight killed in Gaza Strip cafe while watching World Cup semi-final
Sustained immigration has not harmed Britons' employment, say government advisers
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...
£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...
Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...
£12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...