Bank bonuses set to recover - will government reap rewards?

The City may have a £7bn bonus pot this year - but taxpayers may stand to benefit the most.

by Emma Haslett
Last Updated: 08 Oct 2010
It’s that time of year again: bonus predictions for the banking sector are out, but bankers may be spared the annual bout of fist-shaking, because it looks like they could actually lose out. According to figures from the Centre for Economics and Business Research, the bonus pot for the financial sector is due to hit £7bn this year – which is apparently ‘similar’ to pre-credit crunch levels. Granted, it’s not quite as high as last year’s £7.3bn pot – and certainly not as high as the £11bn paid out during the peak of the banking boom in 2007. But while it may still seem like an inordinately high figure, taxpayers may actually be pleased, for a change – because thanks to the Government’s bonus tax, they’re the ones who are likely to profit the most.

The 4% drop from last year’s payout has been put down to fewer people working in the financial sector – but, according to an estimate by the CEBR, there are still 100,000 workers, each of whom stand to receive about £70,000. More, actually, considering support staff like PAs and cleaners, who will get a fraction of that figure, are counted among that estimate. And as the sector recovers, that pot is expected to grow, reaching £7.4bn next year, £7.8bn in 2012, £8.8bn in 2013 and nearly £10bn in 2014.

But those anticipating disparaging headlines may be disappointed, because thanks to the Government’s 50% tax on incomes over £150,000, the state stands to reap more from the City’s rewards than its workers do, raking in about £4.1bn and leaving employees with just £3.8bn. It’s still not exactly a pittance – but given the number of hours bankers tend to put in, we doubt they’ll see it that way.

Meanwhile, RBS chairman Sir Philip Hampton has been increasing his popularity among employees by pointing out that some of them probably aren’t worth their bonuses. At a conference about restoring trust in the industry (but not, clearly, in himself) at Mansion House yesterday, he told delegates that while cutting pay and bonuses would mean the bank loses some of its best staff, ‘I’m sure that we’re paying many people who aren’t worth it’. Nice.

That said, banks aren’t happy with the bonus tax situation, and those who aren’t talking about moving off-shore are looking at other ways to side-step it. So it looks like this new-found boost for taxpayers may be short-lived.

 

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