The £1.3bn bill for compensating customers in this latest mis-selling scandal, credit card protection, is equivalent to the cost of a one-off £200 increase in the personal tax threshold for every taxpayer in the country. While that's just a 10th of the cost of compensation for mis-selling payment protection insurance (PPI), it could provide a modest uplift to consumer spending, if it is concentrated over a relatively short period. The latest official figures showed that Britain's shoppers spent £7bn a week in July.
In general, economists expect households to be more likely to spend a one-off windfall, such as an unexpected cheque for compensation, than a permanent pay rise, and there has been some evidence that the steady stream of payment protection payouts have helped to boost sales of consumer goods.
The Society of Motor Manufacturers and Traders said last month that PPI windfalls had helped to support a strong rise in car sales in the first half of 2013.
At the margin, receiving a small windfall could also help to boost consumer confidence at a critical time, as the government waits to see whether two successive quarters of growth starts to become a more solid economic recovery in the second half of 2013.
