City jobs have fallen by 49%, but bonuses are on their way back up.

Key findings from the latest research by the Centre for Economics and Business Research (CEBR) into the London and City economy, has revealed higher than expected bonuses for 2009, due to less competition and fewer city workers.

Bonuses, which will be paid at the start of 2010, are expected to reach £6 billion, up by 50% compared to early 2009, but still only half of the £10.2bn figure paid out in 2007 before the economic crisis unfolded.

In April 2009, the CEBR forecast bonus payments to be around £4.1bn, but the revised figure is apparently due to “better than expected second and third quarter profits for many leading financial institutions”, together with a change in methodology for the research company.

The report also estimated that the number of jobs in the City has reduced by 49,000 since the start of the financial downturn, 14% below its 2007 height.

Benjamin Williamson, CEBR Economist and co-author of the research, said: “Bonuses are beginning to bounce back but will not reach the levels of 2007 anytime soon. Profits of major financial sector institutions have jumped sharply; therefore bonuses, which to some extent are a profit sharing scheme have also risen.”

The CEBR estimates that cash bonuses are likely to remain below peak levels for at least the next five years.

Douglas McWilliams, CEBR CEO, commented: “Banks’ profits have risen very sharply this year, reflecting a lack of competition in the market. It is not surprising that the increase in bonuses has matched these higher levels of profitability.

“Any attempt to deal with bonuses is likely to be either unsuccessful or very damaging unless it addresses the issue of lack of competition which is at the heart of the sharp rise in profitability.”

Liberal Democrat Shadow Chancellor, Vince Cable, argues that the bonuses do not reflect the contribution by bankers to the economy and are simply a result of little competition. He commented: “These bonuses are coming from the fact that banks are earning money from substantial Government borrowing and are able to earn bigger profits because there is less competition.

“Ministers must stem public outrage by ending anti-competitive practices and ensuring that those getting big bonuses pay their fair share of tax rather than escape via the many loopholes which the Government has left.”

Last week Goldman Sachs announced a record £13.4bn would be distributed in pay and bonuses to staff – equating to around £440,000 for each of its 5,500 employees at its London office alone.

Speaking at a debate on ethics this week, Lord Griffiths, Goldman Sachs Vice-Chairman defended the bonus structure. He said: “We should not be ashamed of offering compensation in an internationally competitive market to ensure that businesses stay here and employ British people.”