What credit crunch? City bankers receive £13bn bonuses this year


* David Teather
* The Guardian,
* Monday May 26 2008
* Article history

City workers have been awarded £13.2bn in bonuses so far this year, suggesting that the credit crunch has yet to be felt in the pockets of most bankers.

The figure is down a modest 1% on the same stage a year ago, when a little over £13.3bn in bonuses had been paid out. The bonus season begins in December, with the full picture only emerging when data for April is released.

The latest figures are likely to spark fury as ordinary householders are squeezed by the worsening economy. Paul Kenny, the GMB general secretary, called for the government to stand up against the financial services industry, which has received help from the Bank of England in the wake of the credit crunch. "There can no longer be any doubt that the multimillionaire elite who run the City and the financial sector are out of control and divorced from economic realities."

The GMB wants an urgent enquiry as to whether the £50bn bailout to banks by the taxpayer is being used to fund bonuses.

The huge payout reflects the fact that many of the banks enjoyed a good start to 2007 before the credit crunch began to take hold. Experts predict that the pain will instead be felt in the next round of bonuses, beginning in December this year and running into 2009. One leading thinktank, the Centre for Economics and Business Research, recently forecast that the next set of City bonuses would be down by as much as 40%. The figures are calculated from data provided by the Office for National Statistics.

The bonus culture, which encourages bankers to take big risks for potential huge rewards, has been widely blamed for the financial crisis. Mervyn King, Bank of England governor, recently told a Treasury select committee: "Banks have come to realise they are paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks."

Richard Lambert, director general of the CBI, has also singled out the bonus culture that has turned thousands of bankers into millionaires as one of the main causes of the financial problems at the world's banks. He said the bonus culture "has encouraged some employees to take spectacular short-term risks, confident that if things work out well they will reap huge rewards, and that if they don't they won't be around to pay the price".

Last year ended up being a record for City workers, who eventually hauled in £14.1bn, a near-30% increase on 2006.