Windfalls give pounds 4bn boost to high street

Consumer outlook: Maturing Tessas and building society flotations will increase sales of cars and other 'big ticket' items
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Economics Correspondent

Consumer spending will receive a boost of at least pounds 4bn this year thanks to windfalls such as maturing Tessas and free shares when building societies join the stock market.

Even if people spend only a modest portion of these one-off gains they will have a big impact on the economy, according to a report published today by Business Strategies. The consultancy - whose chief economist, Bridget Rosewell, has just become one of the Treasury's six independent advisers - is says growth will pick up this year thanks to a consumer spree.

The windfalls consumers will receive this year and next add up to about pounds 50bn. They include electricity rebates to customers, free shares from the flotation of several building societies and the principal and interest on the first Tessas - tax-free savings schemes.

"Most people will be receiving some lump-sum income during the course of the next two years. What they decide to do with this money will make a noticeable difference to Britain's economic performance," David Fell, a director of Business Strategies, said.

On the cautious assumption that about one-fifth of the money is spent in each year and the rest saved, the group predicts that the economy will grow by 2.8 per cent this year. This makes it almost as optimistic as the Treasury, which was criticised by many economists for its Budget forecast.

The critics are starting to change their minds. There are several reasons for thinking windfall receipts will be spent rather than invested.

Consumer confidence has steadily improved during the past 12 months and is at its highest level since the recession.

Surveys also show that the proportion of consumers planning to spend more on ''big ticket'' items such as cars and household goods has overtaken the proportion planning to spend less. And more think it is an unfavourable time to save because of low interest rates.

There is already evidence that part of the pounds 1.8bn in free shares from Lloyds Bank's merger with the Cheltenham & Gloucester building society last August has been spent. Savings dipped sharply in the months after receipt of the shares.

"Even if we are not sure how much will be spent, we can be more confident about what it will be spent on," Mr Fell said.

He said the increase in spending would be greatest in regions where confidence about household finances has improved the most during the past year. These are Scotland and the West Midlands, followed by Wales, the North-west, and Yorkshire and Humberside. In the South-east and South-west people's optimism about their own finances has fallen slightly. But the report adds there is no information about the regional pattern of either Tessas or building society membership.

n The cashless society is still some way off, according to a study of payment methods. More than six in 10 Britons still use cash to make most of their purchases, according to a report by market analyst Mintel.

Among 15- to 19-year-olds, the proportion rises to nine out of 10, while almost eight out of 10 of those aged 65 and over favour cash.