Biggest boom in City bonuses for years risks driving up inequality, says IFS

theguardian.com:

Inequality in Britain risks being driven up by the biggest boom in City bonuses and pay since the 2008 financial crisis, the country’s leading economics thinktank has warned.

The Institute for Fiscal Studies (IFS) said the return of bumper finance industry payouts meant the top 1% highest-paid workers were beginning to pull further away from the rest of the UK workforce despite the cost of living crisis hitting the country at large.

Suggesting that City bankers would be better insulated than most from the soaring cost of living, the thinktank said pay and bonus deals in the Square Mile had shot up in recent months and had risen by about twice as much as other sectors in the past two years.

According to the report, the mean monthly pay packet in the finance sector in February was 31% higher than in December 2019 in cash terms, compared with 14% across all sectors. Pay growth was driven by high earners, reflected in the higher mean figure. However, median pay in the finance industry was also significantly higher than for the economy at large.

The IFS said City bankers, fund managers and other finance workers accounted for almost a third of all employees in the top 1% income bracket, meaning that a bumper period for this group would lift them further ahead of everyone else.

The IFS said this was in contrast with the trend from 2016 to 2020, when low earners saw the strongest pay growth.

Average annual pay growth, including bonuses, has increased in recent months as unemployment falls despite the end of furlough, reaching 5.4% in February. However, wage growth has failed to keep pace with soaring inflation driven by the rising cost of fuel and surging energy bills, exacerbated by Russia’s war in Ukraine. Inflation hit 7% in March