PPI Payouts Help Boost UK Car Sales

New Car sales in the UK have recorded their best year since 2007 according to data released this week. The news points to a rise in consumer confidence, while analysts have made a direct link between mis-sold PPI payments and the rise in UK car sales. Automobile sales in the UK were up 10.8% on 2012, compared to the rest of Europe where sales have vastly underperformed.  

More than £12 billion has so far been paid out by UK banks to victims of the mis-selling scandal, and the compensation has no doubt acted as a welcome boost to personal income for many consumers across the UK. However, the scale of impact may in fact be further reaching than a windfall for customers, as BBC business editor Robert Peston highlights:

“Over 18 months or so, banks have paid out around £12bn to those mis-sold the credit insurance... It represents an economic boost equivalent to circa 1% of GDP - which is big. It is a bigger direct fiscal stimulus than anything either government has attempted since the crisis of 2008”

So while the mis-selling of PPI has arguably caused misery to millions of people who were misled by their bank into paying for a product which they did not want, or one that they could not use, there is perhaps a silver lining to this story. The compensating of PPI customers has ultimately helped to encourage momentum within the recovering UK economy through repaying significant sums of money to consumers during a period in which credit has been scarcely available, encouraging consumer spending.

According to industry experts, the economy is now gathering momentum with lending conditions improving, business confidence growing, and falling unemployment. Yet despite the improved economic conditions, trust in banking remains to be a sensitive subject.

At the end of 2013, Antony Jenkins, chief executive of Barclays concluded that it could take between five and ten years to rebuild trust between consumers and Barclays bank. The chief executive made the announcement in a speech on New Year’s Eve, pledging to rebuild the trust that has been damaged as a result of the banking industry’s numerous scandals including Libor rigging, PPI mis-selling, and money laundering.

While it is encouraging to hear that Antony Jenkins is committed to better practice within the industry, banking scandals unfortunately remain prolific. On Thursday it was decided that York based insurance company, CPP will compensate seven million people who were mis-sold insurance for their credit cards by the company. CPP was fined £10.5 million in 2012 by the then regulator, the FSA and pay-outs are expected to begin in spring this year. 

As the economy continues to build momentum following years of austerity and the economic crisis, we hope that the likes of the Libor, PPI, and recent CPP scandal will be left in the past alongside the recession. We can now hope to look ahead to a robust economic future, free of banking bad practice and scandal- as idealistic as that may seem!