City bonuses start to recover in 2009-10
Figures from the centre for economics and business research (cebr) indicated that bonuses rose during 2009-10 to £6 billion compared with 2008 when remuneration was constructed by the impact of the financial markets crisis and stood at an estimated £4.008 billion.
Despite the government's decision to tax bankers' bonuses for 2009, the latest data from the Office for National Statistics showed the annual growth rate of earnings for total pay including bonuses was 2.3 per cent higher in the quarter to February 2010, pushed up by higher discretionary earnings in the financial sector and some firms choosing to pay bonuses in February rather than January this year.
Improved profits at many leading financial institutions pushed up gratuities and cebr chief executive Douglas McWilliams blamed this on a "lack of competition in the market", an issue he said needs to be addressed. "It is not surprising that the increase in bonuses has matched these higher levels of profitability," he added.
However, the total for 2009-10 remains considerably behind the £10.241 billion financial services companies rewarded their staff in the UK with in 2007. Additionally, although it is much higher than the level of remuneration for 2008-09, the government announced in December that it was imposing an immediate 50 per cent bank payroll super-tax on all City bonuses worth more than £25,000, which had to be met by the institutions themselves, potentially stifling some payouts.
The one-off levy was unveiled by chancellor Alistair Darling as part of his annual pre-budget report to the House of Commons and was intended to cover some of the cash provided from the public purse to shore up companies in the wake of the financial markets crisis. It covered all discretionary payments made between December 9th 2009 and April 5th 2010.
In its assessment of bonus prospects for 2010-11, the cebr reported that the new 50 per cent tax rate on income of more than £150,000 means that a substantial share of any additional payments will go to HM Revenue & Customs rather than into the pockets of finance professionals. According to the economic consultancy, despite a revision of its bonus payments forecast for the year, the government will receive around £4 billion through bonuses and employers' contributions, while £3.6 billion will go into the pockets of bankers.
The government has urged businesses to reign in spending on bankers' bonuses and instead spend money on improving the security of their assets and reducing risk to ensure they are more resilient to economic fluctuations. As a result of public pressure on institutions and tighter budgets in the wake of the global downturn, additional payments are expected to remain considerably below 2009 levels for some time to come.
What will 2010 bring in terms of bonuses?
Bonuses in the City of London are uncertain this financial year, although perhaps less so than in 2009. The worst of the financial markets crisis appears to have passed and signs of economic growth are being seen not only in the UK, which is now out of the recession, but also around the rest of the world.
The Organisation for Economic Cooperation and Development's composite leading indicators February 2010 suggested economic activity is increasing across member states. In the UK, gross domestic product returned to a growth path in the final quarter of 2009, with a 0.4 per cent increase on the previous three months, while the International Monetary Fund is predicting the economy will expand by 1.3 per cent during 2010.
The cebr predicts a further a sharp rise from a £6 billion bonus pot for the City of London during 2009-10 to one worth £6.8 billion in 2010-11, as recruitment in the sector is likely to grow and increase competition for talent.
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