City bonuses to plunge

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BONUSES in London’s finance sector for this year are likely to fall 38 per cent, reaching lows not seen for nearly a decade and sharply reducing the tax take collected on the payouts, according to an economic thinktank.

The Centre for Economics and Business Research (CEBR) slashed its forecast for 2011 bonuses, having initially predicted they would be up six per cent on the £6.7bn awarded for 2010.

It now estimates the bonus pot in the City will come in at £4.2bn, just over a third of the £11.6bn peak in 2007, shortly before the financial crisis.

One of the toughest periods since then for stock and bond trading has pummelled investment banks globally as worries over the euro zone debt crisis spiralled, depressing revenues in the third quarter and leading them to slash jobs and bonuses.

However, overall compensation at some banks has held up well relative to the sharp falls in income.

Salaries have risen dramatically in the past two years as a result of bonus regulations and tax levies, which the CEBR said had partly contributed to the fall in bonus pots.

US and European banks have announced over 100,000 layoffs already, and there may be many more to come. The CEBR said earlier this week that London would lose 27,000 City jobs this year.

It added that bonus payouts would were unlikely to rebound until 2013, and would not return to pre-crisis highs until after 2015 at the earliest.

Of the £4.2bn City bonus pool, £2.5bn will be collected by the UK taxman, down from £6.8bn in 2007, the CEBR projected.