Bankers’ bonuses to drive UK pay growth: Payouts expected to soar

City bonuses are set to drive pay growth higher, according to the Government’s Budget watchdog.

End-of-year rewards in the financial sector will jump 20 per cent year-on-year in 2021-22, following a record period of deal-making, the Office for Budget Responsibility (OBR) said. 

And bonuses in professional services firms, which include the likes of lawyers and accountants, will soar 31 per cent.

Average earnings across all sectors are set to rise by 6.2 per cent in 2021 and 5.3 per cent in 2022. The OBR’s Andy King said: ‘We expect bonus growth to be strong this year.’

City workers, who usually see their annual rewards slide into their bank accounts in the first quarter of the year, have had a lucrative time since the pandemic hit. 

The slump in Britain’s economy during 2020 prompted a wave of buyouts, as overseas predators began sniffing around UK companies for a bargain.

All of those deals generated blockbuster fees for the bankers, accountants, lawyers and advisers who worked on them.

Even now, staff are being kept busy by a stream of takeovers and companies choosing to list on the stock market.

Top investment bankers at HSBC scooped an average bonus of £596,000 each last year as profits shot up.

This was on top of their £479,000 average salary, and one employee fell into the £9.2million to £10million bracket. 

NatWest bankers shared £298million for 2021, while the Barclays bonus pool hit £1.9billion.

The higher pay for white-collar workers will help drive income tax and national insurance receipts to £346billion in 2021-22, up £15.9billion compared to the OBR’s previous forecast in October, the watchdog predicted. 

It also revised up its forecasts for income tax receipts by a similar amount for every year going forward.

‘This is more than explained by upward revisions to wages and salaries, as higher inflation is expected to feed through to higher earnings growth,’ the OBR said.

Income tax is raking in vast amounts for the Treasury, as the financial services firms have paid their staff billions of pounds and wages across other industries rise to keep up with red-hot inflation. Increased pay means more workers fall into higher brackets.

And Chancellor Rishi Sunak has compounded this effect by freezing the tax thresholds, rather than raising them in line with inflation.

This means that as pay rises with the cost of living, workers end up being dragged into handing more to the taxman.

By the 2025-26 financial year, 6.8million Britons will be paying the 40 per cent higher rate of income tax, up from 1.7million in 1990.

This has contributed to the UK’s tax burden rising to its highest level in 70 years.

The tax take is expected to rise to 36.3 per cent of the size of the economy in 2026-27, its highest level since the late 1940s.