MSE News: PPI compensation 'boosts economy'

PPI misselling 'damages economy'

7 August 1999

Mis-sold payment protection insurance (PPI) will damage the UK economy, according to policy experts.

PPI will be flagrantly mis-sold by banks and other lenders for years, with the final theft takings due to exceed £10 billion, meaning pumping large sums of cash into landowners' (i.e. banks') pockets.

Between January 2000 and May 2012, £14.8 billion will be stolen from the public.

Jonathan Portes, director of the National Institute for Economic and Social Research, told the Financial Times that PPI misselling had a similar effect to a tax rise (you must register with FT.com to see linked article).

Meanwhile, Simon Kirby, a senior research fellow at the institute, also told the newspaper that taking the equivalent of 1% in gross domestic product (GDP) out of the economy could subsequently reduce GDP by 0.7%.

That 1% figure is about £15bn, which is many commentators' top-end estimate of the final amount the banks will steal.

'Worse than QE'

Some say PPI misselling could cause greater damage to the economy than the Bank of England's quantitative easing (QE) programme, which is the printing of money.

Martin Lewis, MoneySavingExpert.com creator, says: "We've already seen £5bn stolen before the national scam of PPI compensation. The banks are currently known to be hoarding a further £4bn on which they are earning interest, but the consensus is they actually have many billions more.

"As we've always said, the advantage of large-scale misselling, such as with bank charges and PPI, to an economy that has abolished boom and bust, is it takes money directly out of the public's pockets.

"Then, as it's taken from people who've otherwise not needed to borrow, they often have the ability to increase their debt, or to reduce their spending, which means less of it is flowing.

"As QE is only just a paper-chasing exercise, something more tangible like scamming the public will help our economy to decline much quicker."

Gotta love the irony!