The bonus payout by the City for 2010/11 is forecast to rise to £6.8 billion, up from £6.0 billion in the last fiscal year according to the Centre for Economics and Business Research (CEBR).
The CEBR has revised its earlier forecast by £100 million to £6.8 billion due to increased recruitment in the city after a bumper year for many financial institutions.
However, the new additional higher rate of income tax, which came into force in this month, means City workers will now take home less than the taxman will.
According to CEBR, city workers will take home around £3.6 billion this year after paying employee national insurance contributions (NICs) and income tax, while the government is set to take around £4.0 billion as a result of bonuses, as employers also have to pay NICs of 12.8% on these discretionary earnings.
Benjamin Williamson, CEBR economist and co‐author of the research, said: “The recent change to the tax system has shifted the balance of rewards from City bonuses in favour of the government. Despite contributing billions of pounds in tax already the public’s appetite for a larger slice of City bonuses will not go away.”
The research also showed bonuses jumped by 50% in 2009/10 from £4.0 billion the previous year as the finance sector returned to positive growth in the second half of 2009. This run of form has continued into 2010/11, with leading finance institutions expected to announce spikes in profitability for the first three months of the year.
However, total bonus payments are still significantly lower than the £10.2 billion paid out for 2007, owing to fewer people now working in the City alongside a lower average bonus amount.
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