City pay bonanza adds £1.5bn to bonuses, says ONS

Bonuses paid to City of London traders and dealers rose sharply this year after two years of cuts, as world stock markets revived and corporate activity rebounded.

Bonuses paid to City of London traders and dealers rose sharply this year after two years of cuts, as world stock markets revived and corporate activity rebounded.

The total bonus pool increased by £1.5bn in the year to April 2004 with the bulk paid between the December to April bonus season, the Office for National Statistics said.

It wipes out the combined fall in bonuses of £1.4bn in 2003 and 2002 and pips the previous published record of £1bn at the peak of the dot.com bubble in 2000.

The news will be a boon for the Treasury which has consistently defended its ambitious forecasts for tax receipts by saying that City revenues would rebound sharply over the coming years, refilling Gordon Brown's coffers.

Last month the Chancellor told MPs: "Tax revenues have started to rise because of bonuses in the City."

The ONS figures cover only the scale of the increase in bonuses, not the actual size of the bonus pool. Although the figure is for the rise in all bonus payments, the ONS said it was mainly but not exclusively in financial services.

Traders have gained from huge volatility in stock, bond and currency markets over the last year. Earlier this year HSBC revealed that one unnamed trade received a bonus of £13m for 2003.

There has been a revival of mergers and acquisitions, flotations and private equity deals on both sides of the Atlantic.

The bonus payment pool will also have been boosted by the growth in hedge funds set up to cash into the violent swings in the markets in recent months.

Higher bonuses here partly reflect a better year on Wall Street, where bonuses are expected to total $11bn - an average of $67,000 (£37,000) for every employee in the financial services sector, according to one report.

The report, in the ONS's Labour Market Trends magazine, also found that the overall rate of pay growth including bonuses saw some large fluctuations during that period.

In particular January 2004 saw a very large divergence between the "including bonuses" rate, which was 7.6 per cent, and the "excluding bonuses" rate of 3.9 per cent.

It said firms that also paid in January last year paid higher bonuses this year, while others that had previously paid in December or February had moved their payment date to January.