The UK economy is getting a bigger boost from Britons spending refunds for the mis-selling of payment protection insurance than government schemes to stimulate growth, bank and government data show.
British banks have so far shelled out almost £9bn to deal with customers seeking compensation following the alleged mis-selling of insurance policies for mortgage, loan and credit card products.
Lloyds Banking Group has set aside £4.275bn to cover claims, while Barclays has set aside £1bn, HSBC £1.1bn and RBS £1.3bn. Analysts expect the final bill to exceed more than £10bn.
Britons have used the refunds, which economists say have the same effect as a tax cut, to splash out on home improvements and holidays, providing a boost to Britain’s ailing economy.
“When I heard I was going to get over £2,000 in compensation I hired builders to fix a long-overdue problem with the eaves in my roof and put the rest of the money towards a holiday to Greece in September,” Elaine Overten, a retired nurse from Derbyshire, told the Financial Times.
Simon Kirby, senior research fellow at the National Institute for Economic and Social Research (Niesr), told the newspaper that a “worst case scenario” involving total pay-outs of £15bn, could increase UK GDP by 0.7pc.
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